On August 2, 2016, the Facebook (NASDAQ:FB)-owned photo-sharing app Instagram announced its new feature called Stories, which sounds and works almost the same as Snap’s Stories. Instagram’s Stories feature allows users to post photos and mini videos as many times as they want without them appearing on the user’s profile. Similar to Snap’s Stories, Instagram’s Stories delete after 24 hours. The main difference between the two apps is Snap’s Stories offer special effects and lenses, and Instagram does not. Instagram now offers mostly the same experience but with a broader reach. According to Business Insider, Instagram has about 300 million daily active users, whereas Snap has around 150 million.
Recall that we recently discussed the huge success of the Snapchat IPO. The main issue is the SNAP IPO’d 200 million shares, which were listed at a $7 premium at $24 per share. Many called the stock overvalued. We agree. The stock is valued at 35 times sales, which is twice of what Facebook (NASDAQ:FB) went public at, although Facebook was close to profitability, while Snap isn’t.
We recommend that you avoid SNAP stock at current levels. There is a shortened lock up period, which means upon expiration the insiders will be able to unload massive amounts of stock, which will hurt the price of shares. SNAP has stiff competition and isn’t close to making a profit. Don’t buy.