Snap (NYSE: SNAP) stocks have recovered their continued losses since the 2017 IPO for most of 2019. At the time of this writing, SNAP's share price was slightly higher than $13.60 per share, and it continues to move toward the $17 IPO price per share two years ago.
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The push for user engagement and more ad sales has driven the outlook for Snapchat stock.
However, the company continues to face competition from more well-known companies. If attention shifts to the company's stagnant user growth and financial losses, SNAP may stop moving higher.
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Since the beginning of the year, SNAP shares have risen more than 150%. Investors began to have more confidence in the company because it used an advertising-based approach to help Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR).
Partly because of this new approach, analysts predict a 34.8% increase in revenue this year and a 30.4% increase in fiscal year 2020.
In addition, Facebook decided not to push Direct, an Instagram messaging app that competes directly with Snapchat to further enhance the stock.
Finance is a problem
As I said in a recent article, saving Snapchat is not the same as saving SNAP stock. The number of daily active users (DAUs) of SNAP has started to rise again.
Unfortunately, starting in the first quarter of 2018, DAU is still below the company's record number of daily active users of 191 million.
Financial reports indicate that the market may not further “save” equity. Even if the company can maintain its positive direction, SNAP's sales are still more than 14 times. Despite improvements, analysts predict that there will be at least a loss of 2022.
Assuming that this prediction can be established, then pushing the company forward will mean the pain of the balance sheet. As of the previous quarter, the company held approximately $1.2 billion in cash on its balance sheet. This happens to be the reason why the company lost more than $1.25 billion in 2018.
This assumes that the company can maintain its current speed for nearly a year and then must switch back to the debt or stock market to raise more cash. At that time, the company may have to resort to stock dilution, which of course affects the price of SNAP stock.
Stock issuance is nothing new to SNAP stocks. As of the end of the first quarter, the number of outstanding shares increased by 5.48% year-on-year.
However, there will be a double-digit increase in the number of available stocks per year. In 2017, available stocks rose by 44.34%. Unfortunately, for the SNAP longs, the rise in stock prices has increased the incentive to increase stock issuance.
Snap management issues
Another question relates to the problem that my colleague Laura Hoy mentioned in her article. It is undeniable that the questions she raised constitute a compelling reason for not trusting the management of the company. She pointed out that the decision not to hold a face-to-face shareholders meeting is one reason for this distrust.
The lack of specific details on the balance sheet reinforced this concern. In this statement, Snap refused to list non-current liabilities item by item. Therefore, we do not have information about corporate debt.
We do know that “other long-term liabilities” rose from $110 million at the end of 2018 to $337 million.
If this is a long-term debt, then for a company with a shareholder's equity of more than $2.16 billion, this will not constitute a huge liability. Specifically, this allows management to choose to resolve some of the losses with more debt.
However, the lack of willingness to state this directly may further lead to a lack of trust. For the Snapchat stock bulls, this sentiment indicates that this rebound will continue.
The bottom line of SNAP stock
If investors' attention returns to the number of users and financial situation, then the rebound of SNAP may end. The Snapchat stock rose sharply in 2019 due to advertising sales and new alliances.
Unfortunately, analysts don't think these moves will make SNAP profitable.
A rise in stock prices could lead to more stock issuance. Although the company can solve these shortcomings through debt, when Snapchat needs to build investor confidence, the lack of transparency about financial or shareholder-related issues may create mistrust.
These concerns may be just a matter of time before catching up with SNAP stocks.
As of this writing, Will Healy does not hold any of the above stock positions. You can follow Will @HealyWriting on Twitter.
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Finance, the competition against the wind will catch up with SNAP stocks first appeared on InvestorPlace.
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