Investors in social media are a notoriously fickle bunch

Social media users are a notoriously fickle bunch. The same can be said for their investors. Take Snap. The $36 billion company behind disappearing messaging app Snapchat boosted its daily active users by a hefty 35 million during the second quarter to 238 million. Revenue, up 17 per cent to $454 million, beat expectations. Yet shares fell as much as 10 per cent in after-market trading on Tuesday, before trimming that to a 6.5 per cent decline. The culprit is overly high expectations. Investors betting on Snap’s turnround have bid the stock up nearly 50 per cent this year. The rebound has made the lossmaking company into a pricey option. The stock is trading at about 16 times revenue to enterprise value, compared with the historical average of about 7.5 times… The company has come a long way since 2018 when a botched redesign set off a user revolt and executive departures sent shares sliding down. Tuesday’s results may not be the blowout that Snap bulls had hoped but they suggest the company is still on the right track. Between Facebook, YouTube, TikTok and Fortnite, Snap has no shortage of competitors vying for young people’s time and advertisers’ budgets. Instagram’s TikTok rival, Reels, will add another distraction when it launches. But the fact that Snap has continued to grow its user base and revenues is cause for optimism. 

Lex.

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