Hello friends and fellow traders, and welcome back from the weekend. We hope you had a good one, although any of you who were hoping the bulls would take charge again on Monday are now probably wishing it had been a three-day weekend. All the same, it's not like the market stumbled past the point of no return - there's still a glimmer of hope. It'll take a lot of work from the bulls to prevent this weakness from turning into a major setback, but if there's one thing we've learned since early November, it's to assume nothing. Anyway, that's not what we wanted to discuss today. Our only focal point for this edition is chiming in on a matter we're sure most of you are familiar with... the recent IPO of Snapchat's parent company, Snap Inc. (SNAP). If you don't know what Snapchat is, the Q&D explanation is that it's a messaging service, allowing users to send text messages, pictures and even videos to another Snapchat user. Yep, there are a bunch of other tools out there like it on the web, but where Snapchat differentiates itself is simply that its messages (for better or worse) completely disappear after a few seconds. Some would say this feature keeps the platform from becoming overwhelming, a la Facebook (FB), which pretty much archives everything. Others would say the feature destroys evidence, which.....yeah, but that's a whole different discussion. Whatever the intent is, the business model is inserting the occasional advertisement into the messaging interface. The idea isn't terribly crazy. Facebook's messenger is a big part of the reason the social networking site so sticky, and though Twitter (TWTR) isn't a live chat per se, it does facilitate back and forth communication. What's terribly crazy, if you haven't heard, is the fact that Snap currently sports a market cap of $29 billion, but only generated $404 million worth of revenue last year (and reported a loss of $514 million). Crunching some numbers, SNAP is trading at a price/sales ratio of 72 -- versus the market's norm of about 2.5 -- and though net income isn't even in the radar, if we were to generously assume Snapchat was turning a typical 15% of sales into net income, it would be valued at a P/E of 478.... not that a net profit is anywhere on the horizon. You don't buy into such speculations based on its trailing numbers, of course. You buy into the stock now on the promise that the numbers will be tremendously better in the future. The trick is just figuring out what the stock is going to be worth in the near-term based on investors' collective idea of what revenue and earnings will look like in the long-term. The further out you have to look, the more difficult it is to determine what the stock is worth right now. Now, though we may be putting it in specific terms you hadn't considered, innately, you already know this is how the game works. There's more to the game, however. Again, this is probably something all of you innately, subconsciously know, but we're going to put it right out there, front and center, just because it's easier to do so - Snap is far more hyped than it ever deserved to be, and this IPO (more than anything else) is an opportunity for its founders to cash out. There's no reasonable growth opportunity here relative to the stock's value, despite the fantastic growth outlooks. The story had to be sensationalized to drive the maximum price for the IPO and the subsequent bullish jolt between the IPO and the stock's first trades in the open market on Thursday. Isn't it refreshing when someone just comes out and says it? No tiptoeing around. Here's the rub... just because Snap shares are wildly, stupidly overvalued doesn't necessarily mean SNAP shares are destined to move lower right now, or even in the foreseeable future. There are a bunch of people still playing the game. That said, I'll give credit where it's due. It was the Elite Opportunity Pro's John Monroe who explained it colorfully and accurately way back on April 30th of 2014 shortly after Twitter went public (the fact that I've still got it bookmarked three years later should tell you something): "...from a technical perspective, I've seen this show so many times before, which I also mentioned yesterday. Before an IPO can really take off, it needs to have its brains blown out first. You can go back to just about every major IPO over the last 15 years and you're going to find very similar results. I could go into why this specifically happens from a cap structure perspective, as well as Wall Street's desired motives to make things like this happen but the bottom line is..." It's coming for SNAP, sooner or later. As Sageworks' Brian Hamilton positioned it last week: "[to justify a valuation of even $25 billion] you have to make some very lofty assumptions. They would need to grow for the next 10 years at more than 50 percent every year with a profit margin of 25 percent, which is extremely high given that they are now losing money rapidly." That's a growth pace and profit margin that just isn't likely, despite the company's optimistic projections. Here's what Hamilton didn't say. In the same sense that nobody wanted to copy what Netflix (NFLX) was doing until Netflix actually proved on-demand video was a viable business, now that it's been proven, everybody and their brother is getting into the game. Netflix is still the dominant name in the business, but its growth pace has slowed and its spending has soared in its effort to remain competitive. Snapchat is going to go through the same ordeal even more than it already has. That is, the more proven the business model becomes, the more competitive the business gets. The difference between Facebook and Snapchat or Twitter and Snapchat is, Twitter and Facebook are part of bigger, stickier platforms that can monetize users in several ways. The only thing Snapchat is is a messaging tool, which is easy for others to replicate. This is a story we've seen play out so many times before, and all too often of late. Fitbit (FIT), GoPro (GPRO), Twitter, Groupon (GRPN) were all supposed to be heroes following their IPOs. In retrospect, once investors had a chance to realize there was far more hype than substance, each one of those stocks tanked. It was just a matter of when. We don't know exactly when reality will strike for Snap. We do know, however, that once reality does start to set in, SNAP could make for a very nice downside/short trade. We just wanted to get you grounded regarding Snapchat, as we know the euphoria can be contagious (and we know nobody else is having this conversation with you). We'll be back to our normal fare tomorrow. By the way, if you want to know the best ways to play IPOs, the EO Pro's John Monroe clearly has his finger on the pulse of the game we described above. Here's how you can tap into his insight for yourself.