Snap, Inc. (the parent company of Snapchat) is scheduled to be available for purchase by the public on Thursday, March 2nd. Although this is probably the most anticipated initial public offering (IPO) since Facebook, I’m skeptical. Here are five reasons why I won’t be snapping up Snap[chat].

Snap is not a camera company

To its 150 million active users, Snap is a technology and social media company with two products, Snapchat and Spectacles. Snapchat, Snap’s flagship product, is a dynamic ephemeral photo and video social media platform. Spectacles are sunglasses that connect directly to Snapchat to capture video from the human perspective. If Kodak, the original camera company has evolved into a “technology company focused on imaging,” why is Snap a camera company?

Image via CreateHer stock

The numbers don’t lie

A new tech company should focus on building, selling, marketing, and servicing its product. Sales and Marketing and Research and Development (R&D) should be very high on Snap’s list of priorities. However, Snap’s financials reflect something different. Last year, Snap paid $41 million dollars more in executive salaries and compensation than it did for Sales and Marketing. If this group only makes up 10% of Snap’s workforce, Why is Snap paying these people so much instead of focusing on growing its business?

It looks more like Twitter 2.0

In 2013, Twitter ($TWTR) IPO’ed to much of the same exuberance as Snap. Twitter hit the market at a price of $41.65 per share and was up to $69.00 when it peaked in January 2014. After the excitement fizzled, the reality of Twitter’s consistent underperformance and lack of new user growth became apparent. On February 28, 2017, Twitter closed at $15.77. However, there were early signs that Twitter might underperform. In the three years before its IPO, Twitter did not have one profitable year. In 2012, it posted a $79 million loss.

Excitement tends to gloss over a company’s potential problems. In 2016, Snapchat incurred a loss of $514.6 million, an increase over 2015 losses by 35%, bringing the company’s accumulated deficit to $1.2 billion. The IPO is expected to raise $3 billion dollars, which would “cure” the deficit, but if the issues which caused the deficit continue to be unaddressed, the company could be here again. Additionally, when faced with direct competition, new user growth stalled.

Facebook is a fierce competitor

Facebook attempted to copy Snapchat’s key features fifteen times before its August rollout of Instastories. In its recent earnings call, Mark Zuckerberg announced that 150 million people use Instastories every day. In five months, Instagram matched what Snapchat built in five years.

Snap’s flat fourth quarter new user growth coincides with the debut of Instastories. While Instagram increased its average daily users by 33%, Snap experienced a 14% decrease over the same period. A sustained decline in new active users could adversely affect Snap because Snap generates substantially all of its revenue from advertisers who rely on active users to become their customers.

Purchasers of Snap’s IPO don’t have a seat at the table

Shareholders typically have the ability to express their opinion by a vote on matters that could affect their share value such as approving the Board of Directors, mergers, acquisitions, and sales. However, Snap is only offering non-voting Class A shares. This issue marks the first time that a company has completed an IPO of non-voting stock on a U.S. stock exchange.

Holders of B Shares are entitled to one vote per share. Holders of C Shares, Evan Spiegel (co-founder and Chief Executive Officer) and Bobby Murphy (co-founder and Chief Technology Officer), are entitled to ten votes per share. As a result, two people make all the decisions for the company, from the day-to-day operations to long-term strategic decisions, without input from other shareholders.

Final thoughts

My concerns about Snap are solely related to its business model. From its aspirational characterization as a camera company to its questionable spending priorities, I have reservations about the ability of Snap to run a sustainable business. I am also concerned about the decisions which will exclude general shareholders in favor of the two co-founders.

Kiplinger’s Personal Finance suggests that investors wait at least 90 days before buying into a stock that has IPO’ed recently. This waiting period allows for the “hype to die down and rational analysis of a company’s business to take over.” Since I am a buy and hold investor, these issues give me pause. If you are a trader, the hype surrounding Snap will probably be enough to garner a profit over short trading cycles. If you are interested in purchasing Snap, I suggest you read its S1, the prospectus for the IPO filed with the Securities and Exchange Commission (SEC).