When Snap first came to market last year, it was difficult to separate the hyperbole from the facts in terms of market enthusiasm for a company that wasn’t, and still isn’t, any closer to making a profit.

In 2016, the company lost $514m and in March, Snap's management admitted in a filing that the company might never become profitable.

Snap certainly wouldn’t be the first company to struggle in terms of profitability; you only have to look at some of Twitter's recent struggles to realise that. But in the longer term, investors still need to see evidence of progress, and so far this seems rather thin on the ground. Now, over a year later, it doesn’t look any more likely that the company is worth anything close to its $25bn valuation.

There was some excitement earlier this year when the company managed to post numbers that beat market expectations. A 5% rise in user growth and 8.9m new users surprised the market, as did a lower-than-expected loss of $350m. This was definitely a move in the right direction, particularly given the possibility it was well-positioned to benefit from Facebook’s recent woes and its data privacy controversies.

Snap does appear to be benefiting from a younger demographic, and the recent negative PR around Facebook could prompt a move away from Instagram and towards Snapchat. That doesn’t appear to have happened though, and it would appear that the reasons revolve around a redesign that has helped drive users away, rather than draw them in. The company also warned that growth and revenue could slow substantially in Q2 despite revenue coming in at $230.7m in Q1.

The negative publicity from the redesign certainly hasn’t helped and while the company argued that the changes would help drive growth in the long run, it would appear that markets aren’t currently convinced, let alone its users, 1 million of whom who signed a petition asking the company to roll back the changes.

It appears management have reaped their reward for turning a deaf ear to their user base with another sharp fall in the share price to record lows. Despite today’s sharp falls, management remain insistent that the changes will pay off in the long term, which is likely to be cold comfort to those investors who bought into the narrative of the IPO over a year ago.

That being said, these investors can’t say they weren’t warned, given the shareholder structure offers no voting rights in the context of how to steer the direction of the business. In investing you usually get what you deserve and in this particular IPO the hype was always too good to be true.
 

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