Is It The Right Time To Buy Stock In Snap?

Is It The Right Time To Buy Stock In Snap?
March 6, 2017

Many on Wall Street are comparing Snap Inc. (SNAP) to Facebook (FB) or Twitter (TWTR) and for now, that's okay. All three can be considered social networks, rely on daily active users and generate the majority of their revenue from advertising.


In the future, however, Snap may wind up being more like another Silicon Valley giant than the aforementioned ones -- Apple (AAPL).


Buying stock in Snap today is a bet on CEO Evan Spiegel more than it is on the company's prowess as an advertising behemoth. Spiegel, 26, is a product visionary the world has not seen seen Apple's Steve Jobs and to some extent, Tesla Inc. (TSLA) CEO Elon Musk. 


There are similarities between Jobs and Spiegel, both starting their companies after dropping out of college, are wonderful salesmen and marketers, but the similarities go further than that.


Jobs is Spiegel's idol; he has a portrait of the legendary Apple co-founder hanging in his office. When unveiling Spectacles to The Wall Street Journal this past fall, he even used Jobs-ian language, saying "You wanna see it?" as he took off the towel covering the product. This mentality plays to the culture of secrecy at both companies, not releasing products until they are ready to be talked about. 


And unlike other technology companies, neither Snap or Apple have "beta" products. There is no group of early adopters buying and using a product so the companies can get an idea of how users are interacting with it and then continue to refine. Every meticulous detail is thought out and obsessed over and is not released until it's perfect.


Aegis Capital analyst Victor Anthony said the company's most valuable asset is its demographic, with 13-24 year olds comprising nearly 60% of its user base. While these are highly coveted by advertisers such as Procter & Gamble, Clorox and others, Spiegel is the company's most valuable asset. The ability to know what people want before they want or see it is an invaluable trait that very few executives have. It can not be measured or valued, but it's something that investors need to keenly aware of when looking at where to put their investing dollars.


Snap has positioned and sold itself as a camera company, having mentioned that multiple times in its S-1. This can allow them to expand into everything and anything that has a camera. 


Despite the optimism surrounding Spiegel, the stickiness of Snapchat (engagement levels are shockingly high) and the coveted user base, it's not all roses for Snap at this stage.


There are concerns about the company's financial picture, as it still generates the majority of its revenue from advertising. Going up against Facebook and Google, which have mountains of user data that advertisers love, can be a daunting task (just ask Twitter).


Issues surrounding slowing user growth, the ability for competitors to copy product features, lack of data analytics, no voting control with Class A shares are all valid reasons to be wary of Snap, especially at a $35 billion valuation. 


But again, it comes down to be at the forefront of an area that's only going to expand with a product visionary for a CEO.


Images, whether it's augmented reality, virtual reality, moving or static, are humanity's future. All you have to do is just look at the popularity of Instagram to see why. Snap, with Snapchat, its burgeoning hardware portfolio and most importantly Spiegel, is poised to be at the forefront of this trend for many years to come.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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