Bloomberg's Johnson: Snap Is Priced To 'Grow, And Grow, And Grow Fast'

Snap Inc SNAP's earnings report made it clear user growth is slowing down. Wall Street analysts took note of this metric and updated their valuation models accordingly, but few took a look at why this trend is happening and if it can be fixed.

According to Bloomberg's Cory Johnson, Snap did realize "fantastic" growth in users over the past few years. Most notably, Snap's user growth in the second quarter of 2016 grew by 17.2 percent sequentially but then fell to a single digit leading into the initial public offering.

Even the free publicity and hype surrounding Snap's IPO didn't help support user growth.

But now that Snap is a public company, investors will need to see strong growth in user additions, and the company's earnings report made it clear that it is becoming more difficult to bring in new users.

Snap Is Priced Like A Growth Stock

Johnson noted Snap's 5.1-percent sequential user growth in the first quarter would have been acceptable if Snap was a utility company and offers a 3-percent dividend yield. However, Snap's stock is priced under the assumption it will "grow, and grow, and grow fast."

So why exactly isn't Snap growing at a time when social media giants like Facebook Inc FB are having no problems satisfying investors in their growth metrics based on its 18-percent increase in daily active users in the most recent quarter.

"The slowdown in [Snap's] growth exactly coincides with the launch of Instagram's Stories and I don't think we can pretend that's got nothing to do with each other," Johnson said. "Clearly they are going after the same users with a very similar product."

Related Links:

Underwriters Nailed Snap's Market Valuation Perfectly

First Quarterly Report From Snap Has No Crackle Or Pop