3 Reasons Why Snap Stock Might Bounce Back

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Investors eyeing freshly minted market debutantes may view Snap, Inc. (NYSE: SNAP) as a cautionary tale. Snapchat's parent company has shed more than half of its value since peaking the day after its early March IPO, closing lower every month in its brief public tenure.

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There's no shortage of boo birds. Snap's lack of profitability, decelerating user growth, and the growing realization that Facebook's (NASDAQ: FB) Instagram is eating Snapchat's lunch are weighing on the stock. Snap stock has become a punchline, but that doesn't mean the reeling camera company won't have the last laugh. Let's look at a few things that are going right for Snap these days.

1. Snapchat's grasp on millennials matters to marketers

Snapchat's been dismissed as a hub of selfie-snapping youth, but that is still a group advertisers need to reach. Comcast's (NASDAQ: CMCSA) NBC began streaming a short-form news show exclusively through Snapchat this summer, and it's a hit. Axios is reporting that NBC News' Stay Tuned has attracted more than 29 million unique viewers. Stay Tuned puts out one or two segments a day that are rarely more than three minutes long, but it's resonating as more than 40% of daily viewers are watching at least three installments a week.

Snap's distinction is its young user base, so it's not a surprise that more than 60% of Comcast's Stay Tuned viewers are younger than 25. Axios points out that the average cable news viewer is older than 60. This is big news for content creators that are trying to offset the decline of cord-cutting millennials, but it's equally important for the brand advertisers that don't have conventional ways to woo young customers that no longer tune in to ad-splattered traditional television or terrestrial radio. Snap is in a great position to attract content creators, marketers, and consumers, and that's something investors aren't respecting.

2. Wall Street eventually rewards growth 

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Investors bailed on Snap after last week's disappointing second-quarter results, but they can't say the rookie stock isn't growing. Revenue surged 153% in the report, as a 21% year-over-year uptick in users and a 109% pop in average revenue per user combined for the healthy top-line gain. Facebook, on the other hand, is a market darling that grew its revenue by just 45% during the same three-month period.

There's obviously more to a stock's price action than growth, and it's fair to say that Snap's valuation has scared away investors given its lack of profitability and its still sky-high price-to-revenue multiple. However, sooner or later, heady growth gets rewarded.

3. Busted IPOs can bounce back

Snap finally buckled below its $17 IPO price last month, and a recovery doesn't seem possible anytime soon. It shouldn't be forgotten that Facebook was once a broken IPO, too. Facebook went public at $38 in May 2012, and four months later it bottomed out in the high teens. Facebook stock also closed lower in its first four months of trading.

There are clearly a lot of differences between Facebook and Snap, but this is just an important lesson: A stock that starts cold can sometimes heat up. If Snap is able to grow its audience and engagement -- and achieve profitability -- as it woos content and advertisers, it's future may not be as dark as its first few months of trading.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.