Snap Inc (NYSE:SNAP), the owner of Snapchat, is struggling with high cash burn to keep up with technological advances while Facebook and Google continue to dominate the market, according to an ayondo markets analyst.
The company renamed itself Snap last year to reflect its expansion into developing gadgets, such as its video-recording Spectacles sunglasses.
But it’s been having a hard time trying to play catch-up with its rivals.
READ: Snap shares tumble as insiders are unshackled from post-IPO lock-up
“What now seems to have taken place in the industry is what I would colloquially call ‘two tier tech’: smaller, less established tech companies like Snapchat and Twitter struggle with high cash burn rates to keep up with technological advances, while companies such as Facebook and Google power on with their dominance – two who can afford a magnitude of loss making projects without it relatively affecting their share price valuation,” said Jordan Hiscott, chief trader at ayondo markets.
Shares plunge below IPO price
Worries about competition, particularly from Facebook-owned Instagram, have seen the social media company’s shares price fall well below the March initial public offering price of US$17.
Shares are currently about US$12.93 each, down 40.73% over three months.
The first of Snap’s early investors were able to sell their shares on Monday following a lock-up period, which saw the share price fall to an all-time low of US$11.91 this week.
“Has Snapchat snapped? Certainly the plethora of negative news seem nonstop, including most recently a lock-in period where no shares could be sold for 150 days after the IPO expired,” said Hiscott.
“It would seem that investors and other staff have been readily selling their shares in light of Snap’s recent price performance.”
First quarter ad revenue misses forecasts
READ: Snap shares edge closer to IPO price as Facebook-owned Instagram adds more users
Hiscott said that while advertising revenue at Snap rose 286% to US$149.65mln in the first quarter, it was well below analysts’ expectations of US$157.98mln, sending its shares down 25% at the time the results were reported in May.
Snap generates most of its revenue through mobile ads, which it displays in its “Stories” format of its photo-sharing app.
Snapchat also sells advertisers sponsored user tools, filters and lenses, competing with Facebook and Google.