An Investment Strategy
Hernan Lopez
Hult Undergrad San Francisco
S nap
Inc . is the parent company of the famous social media app Snapchat , used to share pictures that disappear in less than 24 hours . Everyone knows Snapchat and the potential it has , with 158 million daily active users and an
average number of snaps per day of 2.5 billion , it is clear that Snapchat can become a strong cash generating app . Snap ’ s revenues have been growing at an astounding rate and are forecasted to continue .
Snap Inc . is forecasted to grow daily active users at a 3.75 % rate quarter to quarter . These daily active users translate into revenues , but is Snap really generating cash ? The short answer is NO . Snap is the type of company that is hard to forecast , has high volatility and moves in a non-traditional way . The company is valued at $ 28.36B with negative earnings and no sign of turning this earnings into positive ones any time soon . When a company is not profitable , but has high potential and popularity it becomes like a cult for stock traders , making the stock less sensitive to traditional market catalysts and more unpredictable . A good example of this type of stock is Tesla . By studying Tesla , you can understand that even when a company constantly disappoints its shareholders , if it has become a “ cult stock ”, it still might grow . This type of growth is unsustainable because it does not come from real cash flow growth that would increase the company ’ s valuation , but rather comes from high demand for the stock . A shift in demand for these types of stocks can result in disastrous falls in stock price and loss of value for shareholders .
My prediction for Snap Inc . is it will end its fiscal year below its IPO price . After a bullish period , Snap Inc . will reach a peak price and will fall abruptly , then it will stabilize towards the end of the fiscal year to close with a price of $ 12.95 . Considering the difficulty to estimate
Cult Stocks