Inability to Monetize is Causing Snap’s Valuation to Fade

Since releasing its initial public offering (IPO) in March at $17 per share, Snap, the parent company of Snapchat and Bitmoji, has seen its value on Wall Street slowly decrease.

It closed its first day, March 2, up 44 percent at $24.48 per share, and the second day it saw an 11 percent spike up to 27.09 per share. By Tuesday, March 7, shares had declined by 21 percent to $21.44. Since then, shares have only continued to steadily drop. Today, shares sit around $13.91 – a 49 percent decrease from its peak at $27.09, and a 18 percent decrease from the original IPO of $17.

Twitter’s IPO opened on November 7, 2013 at $26 and closed the first day up 73 percent at $44.90 per share. Twitter’s price per share spiked at $69 in early January 2014 but has since fallen exponentially in the past three years. Today, valuation sits at $19.87 per share – a 71 percent decrease from the peak $69 and a 24 percent decrease from the original IPO of $26.

Facebook’s IPO opened at $38 per share in May of 2012. Today, valuation is up to $164.61 – a 77 percent increase from the initial IPO. In 2017, valuation has continued to grow while seeing a 29 percent increase since January 1.

The important difference between Snap and Twitter versus Facebook is Facebook’s ability to monetize content in a variety of ways. Snapchat and Twitter predominantly have single-faceted monetizing capabilities: Twitter has “promoted” tweets. Snapchat’s ads appear following a story’s conclusion but can be easily ignored with one tap. On Facebook, publishers can utilize direct sold ads and branded content, as well as Instant Articles, all with supreme targeting and measurement.

Ultimately, as a marketing entity, you have to find ways to get your audience to buy from the ads you feature on the platform. Twitter, Snapchat, and even Facebook have still yet to figure this out. The sheer volume of its users, and the amount of time those users spend on its site, gives Facebook the largest platform reach and the most data to utilize within targeting and measurement, and therefore the highest ROIs for advertisers.

If you’re not growing your capability (i.e. innovation) or growing your users (i.e. sustainability), your valuation will go down or flatline like Pandora. You’re either sustaining your current business, growing your capability, or your valuation is falling.

The most innovative Snapchat ads are sponsored geofilters and sponsored lenses. While these get high numbers of views, it’s difficult to tell if the ads actually resonate with users or how much sustainable value these add to its users.

With few other innovative ways of monetizing things other than user’s eyeballs, the novelty of Snap’s ad units may begin to wear off. Lack of innovation (or Facebook’s uniquely massive reach) equals a lack of pricing premium. Twitter has suffered from this reality, and Snap could be heading in the same direction.

Sources:

http://www.cnbc.com/2017/07/13/snapchat-gets-upgrade-a-day-after-falling-to-new-post-ipo-low.html

http://www.cnbc.com/2017/07/11/investing-in-snap-is-like-driving-drunk-said-nyu-professor.html?recirc=taboolainternal

http://www.cnbc.com/2017/03/02/snapchat-snap-open-trading-price-stock-ipo-first-day.html

http://fortune.com/2017/07/12/heres-how-many-billions-evan-spiegel-has-lost-since-snaps-ipo/

https://techcrunch.com/2017/07/10/snap-falls-below-its-ipo-price-for-the-first-time/?ncid=rss&utm_source=tctwreshare&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29&sr_share=twitter

http://money.cnn.com/2013/11/07/technology/social/twitter-ipo-stock/index.html

G.J. Melia