Under pressure from Instagram and Facebook: why Snapchat can leave the exchange, and why?

    Image: Stock Catalog | CC BY 2.0

    The Snap company, which owns the messenger Snapchat, may be forced to leave the exchange under the pressure of problems and serious competition. This opinion is expressed by analysts of Pivotal Research Group, which enjoys prestige on Wall Street. Abstracts of the letter published edition of CNBC, and we give them a brief retelling.

    Snapchat problems

    The owner of the disappearing messages messenger Snap has entered the stock exchange in March 2017. Since then, its capitalization has fallen by $ 20 billion, since the beginning of 2018, the value of shares has fallen by more than 50%, and the number of new users of the application is growing too slowly.

    “According to the data we studied, the number of Snapchat users is growing,” wrote Brian Wieser, Pivotal Research. “However, the time they spend in the app is reduced.”

    At the same time, analysts are convinced that it is not too late to look for ways to correct the isturation and work on monetization. The Snap management has certain chances of saving the company, however, if they fail to improve the business metrics and the stock price remains at the current level, Snap will be an excellent candidate for leaving the stock exchange.

    Snapchat is losing the competition for Facebook and social networking site Instagram. Both of these services copy the functionality of Snapchat, including disappearing messages (stories). In such conditions, it is difficult for a company to work on monetization, although the management does not abandon attempts to fully implement it.

    For example, in October, Snapchat announced about the launch on the platform of their own entertainment shows, during which users will be shown ads (you will not be able to skip it).

    Why do companies leave the stock exchange

    The transactions for the care of a public company from the exchange are called “take-private”. Usually, in the course of such transactions, a consortium of private-equity funds buys the shares traded on the exchange. This is done in the calculation of the growth of their value, as well as profit from the activities of the company - if it is traded on the stock exchange, its revenue can amount to billions of dollars.

    For management and shareholders, the most outgoing company from the stock exchange is also played by monetary motivation. If the shares have fallen and are not rising in price, then the premiums of the top management and the founders can be zeroed out, and it is difficult for investors to earn on their investments. At the same time, with take-private transactions, buyers usually pay a premium of 20-40% of the current share price. As a result, everyone is happy - the management receives its premiums, and investors have the opportunity of a profitable “exit” (or at least minimizing losses from investments).

    What will be with Snapchat

    Companies selling access to digital advertising platforms like Snapchat or Twitter find it hard to resist competition. The entry threshold in this industry is not very high, and the risks, including those associated with the activity of regulators in different countries, are quite high.

    In addition, Snap management itself makes mistakes that worsen the company's position in the market. Since February redesign Snapchat was a failure and caused users anger.

    The difficult situation gives analysts grounds for deteriorating forecasts on Snapchat. For example, the partner of the company MoffettNathanson stated that "Snap was not ready for the life of a public company, and now she is running out of money." According to his assessment , the company will require a new round of funding in mid-2019.

    Snapchat founder Evan Spiegel plans to achieve self-sufficiency in the fourth quarter of 2018 and profit in 2019. The fate of his creation on the exchange depends on whether he succeeds in realizing these plans.

    Other materials on finance and stock market from ITI Capital :

    Also popular now: