Facebook is the social media giant and social media platforms like Snapchat, Twitter, etc. literally are no competition to it. However, that did not prevent the photo and video-sharing app from being valued at a colossal $28 billion on its first day of trading on the US stock market in March.
Snap shares rose more than 9% in volatile trade
The valuation of Snap has now halved which has prompted the CEO Evan Spiegel to pledge that he and Bobby Murphy – the co-founder of the social media platform – would not sell any of their shares this year. This promise by the CEO was meant to indicate the deep belief of the two founders in the long term success of the company.
The shares of the social media platform declined over 16% on Thursday after second-quarter results. Spiegel asserted that the Wall Street analysts are looking at the social media platform through the wrong lens. He asked to forget about the number of daily users and look at the amount of time that users spend on the camera app and how much the advertisers are willing to pay.
The news site Guardian notes in its report, “Spiegel’s general point is fair: advertising revenue is what ultimately counts. The trouble is, Snap doesn’t yet have a good story to tell on that front. Average revenue per user was $1.05 in the quarter, up from $0.90 in the previous three months. A quarter-on-quarter increase of 16% is not be sniffed at, but the revenue numbers only become explosive when combined with lots of new users.”
Reaching $1 billion by 2017 will be difficult for Snap
The photo-sharing app added only 7.3 million to reach 173 million, on a quarter-on-quarter rise of only 4%. It is no surprise that the CEO would want the people to concentrate on something else now. The same fact remains that the photo-sharing app is a small company in its industry. In the quarter, the revenues were $182 million and over the last six months, the revenues were $331 million.
This suggests that reaching $1 billion for this year – as many Wall Street analysts had expected – will be a stretch. Stocks like Tesla, Google, Amazon, and Facebook are still very difficult to value by the analysts but the market is commendably ruthless in punishing the shares of overpromoted companies that financially disappoint, like the micro-blogging company Twitter.