Why snapchat stock is doomed to fail

Most of you have probably already heard of the snapchat IPO where they managed to raise no less than $3,4 billion. On the first day of trading the price of the stock jumped from $17 to $24 in no time. It all seemed as if this was gooing to be the stock of the year but a lot has changed since the first week of trading. None of the financial analysts recommend to buy this stock but to short is to the floor.

Slow user growth
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source: https://techcrunch.com/2017/02/02/slowchat/

The user base of snapchat used to grow 40-50% every year but since the introduction of similar platformes from competitors (facebook/insatagram in particular) the growth rate has slumped to 5% on average each quarter. Not only new platformes but also the rather small market that they serve (young people) is a reason why the user base doesn't grow like it used to anymore.

Price/earnings ratio
Currently the company is valuated at $30 billion with $404 million in revenue in 2016. This means that they have a P/E earnings of 75. According to big investors like Benjamin Graham and Warren Buffet a healthy P/E ratio fluctuates around 15-20 but since it's a startup 50 should be an absolute maximum. If they don't manage to meet the estimates which is $1 billion in revnues at the end of 2017, interest in this stock will fade away and it will obviously crash.

conlcusion
Be cautious if you buy this stock. There's a change that you might make a profit if snapchat manages to meet the estimates but there's also a big chance that they will never be able to realise this and according to the P/E ratio of the stock, there's plenty of space to slide down, hard.