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Earlier this year, social messaging service Snap (NYSE: SNAP) decided to test the public markets. Many were concerned about whether the company will manage to sustain its valuation under the constant glare of the stock market. Almost a quarter later, the verdict is not favorable. Since listing, the stock hasn’t appreciated much and decelerating growth figures coupled with the absence of profitability makes analysts wonder why the stock should have ever been bought.

Snap’s Financials

Last month, Snap recorded its first results as a public company. Q1 revenues grew 286% over the year to $150 million, missing the Street’s forecast of $158 million. The high percentage of growth is attributed primarily to the reason that it is only recently that Snap had figured out a revenue monetization model. Snap recorded a net loss of $2.2 billion for the quarter primarily due to the $2 billion spend related to stock-based compensation. Adjusted loss for the quarter came in at $0.20 per share compared with the $0.16 per share forecast by the market.

Snap doesn’t break out its revenues, but here are some interesting operating metrics for the company. At the end of the quarter, Snap recorded 166 million daily active users (DAUs), translating to a growth of 5% over the previous quarter. Compared with the previous year, Snap’s user growth rate has fallen from 48% a year ago to 36%. During the quarter, it added a modest 3 million new users in the North American region. It ended the quarter with 71 million DAUs for the region, which was flat over the previous quarter. In Europe, the company added 3 million users to end with 55 million DAUs, and in the Rest of World, it added just 1 million users to reach 40 million DAUs.

Snap’s average revenue per user (ARPU) isn’t very impressive either. For the quarter, ARPU fell to $0.90 from $1.05 a quarter ago. The number has improved significantly from the $0.32 reported a year ago.

Snap’s Woes

For Snap, the move to the public market hasn’t been an easy one. Not only has it found it difficult to convince the investors of its potential, but it is struggling to keep competitors away and customers interested. According to a report by Statista, a mere 7% of the marketers surveyed were using Snap as their advertising model during the first quarter of the year. That is a far cry from the 94% marketers who use Facebook and 54% who use Instagram.

Facebook and Instagram have been Snap’s biggest concerns. Backed by Facebook, Instagram continues to launch features that are similar to those launched by Snap. Recently, Instagram announced the launch of Archive that lets users move posts that have been previously shared to a private archive. The Archive feature is very like Snap’s Memories that was launched last year to save videos and photos shared on Snapchat in a private folder. For Snapchat, it was a significant feature considering that it boasted of an ephemeral message and let its users save their media.

This isn’t a new thing for Instagram. In August last year, it copied Snapchat’s Stories and created its own version. And, Instagram was not alone. Facebook Stories, WhatsApp Status are all similar to Snapchat Stories – all of them doing better than Snapchat as a whole. For instance, Instagram’s Stories saw 200 million DAUs – a number significantly higher than Snap’s current DAU.

Snap’s Growth

Despite the worries, Snap continues to remain unfazed. To attract advertisers, the company released tools and a partner program to help educate marketers on creating and handling ad campaigns on the platform. Some of the new features include a self-service platform Ad Manager, which allows brands to buy and track ads. It released a browser-based tool Snap Publisher that helps advertisers create campaigns for Snap’s vertical video format. It is working on a Certified Partners program that will provide additional training to Snap’s top ad-tech partners. The upgraded ad services will simplify the process of ad buying for small businesses.

Above all, it continues to invest in its hardware business. After launching Spectacles earlier, it is now working on a new version of the sunglasses with built-in cameras that could include augmented reality. Analsyts expect that the new glasses will come with sensors to determine a user’s location and will be able to overlay graphics, such as lenses and geo-filters onto the space around them.

The market isn’t too pleased with Snap though. Its stock is currently trading at $17.88 with a market capitalization of $21 billion. It had peaked to $29.44 soon after listing at $17 in March. The stock had fallen to a low of $17.56 soon after the result announcement. It appears to be barely managing to stay above its list price. Snap’s stock has not been helped by the fact that recently Citi Research downgraded the stock to neutral from buy earlier this month due to modest user growth expectations.

Prior to listing, Snap had raised $2.65 billion in funding from investors including Alibaba, General Atlantic, GSV Capital, Fidelity Investments, Glade Brook Capital Partners, York Capital Management, August Capital, Yahoo!, GIC, Kleiner Perkins Caufield & Byers, Coatue Management, Tencent, SV Angel, Benchmark, General Catalyst Partners, Institutional Venture Partners (IVP), Lightspeed Venture Partners, and Lone Pine Capital. Its last round of private funding was held in May 2016 when it raised $1.8 billion at a valuation of $20 billion.

There is a lot more grief ahead for Snap, as Facebook doubles down with superior execution. I would put a SELL rating on this stock in glaring neon signs.

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