Snap Inc. (SNAP) Viewed as 'Overvalued Chat Company' by Raymond James

Snap Inc. (NYSE: SNAP) refers to itself as a camera company. However, Raymond James would argue that Snap is more of a chat application or messaging company. Historically, chat/messaging apps have been difficult to monetize.

Based on a survey, Snapchat ranked as the 3rd most important social platform (ranked 1-4), with Facebook being the most popular, followed by Instagram. The app ranked relatively high in the 13-17 and 18-24 age groups though relatively low in 25-29 and 30-34 age. The company has indicated that in order to grow it needs to add more users above age 34. While analyst Aaron Kessler would agree with this assertion, it could prove challenging.

Snapchat has indicated that the company has over a 70% reach among the 13-34 year-old population in the U.S., France, the UK, and Australia. However, based on recent survey results, 14% of users expect to stop using the service while 54% of users expect to use the service less as they get older.

Investors are focused on the Discover Platform as it is viewed as much better inventory to monetize. Snapchat Discover allows users to watch Publisher Stories, Shows, or “Our Stories”. Management has avoided questions on its earnings calls on usage and size of the Discover Platform. According to the data obtained from the Daily Beast, only ~20% of users are using the Discover section on a daily basis. Additionally, this usage could get worse as Snapchat rolls out new platforms.

Snap Inc was downgraded to Underperform (from: Market Perform) at Raymond James.

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