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Snap Inc had  a 44% pop on the first day.

Despite the roaring demand, investors remain cautious. Even the analysts are not recommending a buy rating yet.

So is Snap a good investment? Well, I am quite cautious.

First, despite the explosive revenue growth, there is a slow down in growth of users.

Second, investors have no say about the company because they hold non-voting shares.

Third, there is a  material weakness so don’t be surprised if Snap restates some time later.

Fourth, no alternative business model besides advertising. Advertising is very competitive and given that Snap has no other way to monetize well that seems like a concern. It says it is a camera company. GoPro is a camera company and it is facing steep competition.

Fifth, costs are going up and they have a big tax bill.

Sixth, as a camera company, it does not have its own manufacturing. So add operational risk to the list.

Seventh, growth through acquisition. It already has a large goodwill. Let us remember all kind of interesting accounting gimmicks occur during acquisitions.

Eighth, lot of discretion in use of proceeds. Well…that is interesting. hmmm.

Ninth, very young executive team. Given that the CEO has been already in hot water for improper emails…Expect more drama…

Tenth, too much story. Damodaran makes an excellent point in his new book that story is as good as the number can reasonably give some plausibility. I have not done a model but given that even their non-GAAP numbers are negative, the story seems a bit optimistic.

In sum, I would be very cautious in investing in Snap.

Look forward to seeing what SEC had to say about Snap’s IPO 😀

PS

Comment letters should be released within 45 days going public.

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