Snap (NYSE:SNAP) has benefited from an impressive, unexpected comeback in 2019. Because the company has begun earning more revenue from ads, investors have snapped up SNAP stock.
However, once investors look closely, they may find that SNAP has not entirely escaped the challenges that briefly took Snapchat stock below $5 per share last December. Although Snapchat’s prospects appear to be more promising, competition with Facebook (NASDAQ: FB)looks positioned to take down the SNAP stock price again.
Snapchat Stock Is Falling After an Impressive Run
The National Institutes of Health found a link between social media use and low mood and high paranoia. Looking at SNAP stock, one has to wonder if that association also applies to social media investing.
At first glance, SNAP stock seemed to have reported successful third-quarter results. Although the company lost 4 cents per share, that figure was 1 cent per share ahead of analysts’ average estimate. Moreover, its revenue of $446.2 million exceeded the average estimate by $10.2 million. Revenue also grew by 50% year-over-year.
SNAP stock fell by more than 5.8% the day after the company released its report. However, it recovered quickly. SNAP stock price has now risen by almost 5% since the company publicized its Q3 results.
SNAP has begun using ads to more effectively boost its revenue, like its competitors Facebook and Twitter (NYSE:TWTR). Previously, SNAP was viewed as a company that may never become profitable. Now analysts believe the company can report a profit by 2022.
Facebook Remains a Serious Threat
Nonetheless, the recent gains of SNAP stock have been unimpressive. In a recent article, I warned that the increases of SNAP stock could reverse quickly. At the time, the SNAP stock price stood at just under $16 per share. Today Snapchat stock trades at just over $14.60 per share.
SNAP stock price fell during this time for the same reason it fell in the past: Facebook. Facebook’s Instagram rolled out a camera-based messaging app called Threads. Snapchat stock fell by about 5.5% on the day that Facebook unveiled the app.
That should also serve as a reminder to investors that Facebook remains the 800-pound gorilla in the social media space. Obviously, FB is going to continue to hamper SNAP’s growth.
Moreover, Snapchat has again begun to grow its base of monthly active users (MAUs). However, about 90% of its user base is between the ages of 13 and 24, and most of those users don’t have much income. The company remains largely unable to consistently attract the support of older, higher-income users.
Other disturbing trends have begun to appear as well. In Q2, the company brought in $390 million in revenue only to hand out more than $195 million in stock-based compensation, as InvestorPlace contributor Luke Lango pointed out. Seeing that, one has to wonder if Snap’s management has the best interests of the average owner of SNAP stock in mind.
Final Thoughts on SNAP Stock
For all of the talk about SNAP’s re-emergence, recent events have made it clear that SNAP stock will continue to face the same challenges as it has in the past. Without question, Snap has successfully integrated ads into its product. Its revenue growth remains robust, and now, some analysts see an eventual path to profitability for the company. As a result, SNAP stock price has soared 170% since the beginning of 2019.
Unfortunately, SNAP appears to be more trapped by its old challenges than many would like to believe. Facebook has long kept Snapchat in its place by co-opting its features. The Threads application on Instagram merely represents the latest example of that trend.
The NIH will likely not study Snapchat investors. However, given the overwhelming challenges Snap stock faces, it appears that staying away from SNAP has the potential to help both investors’ portfolio and their mental health.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.