Is DatChat Stock Overvalued?

What Is DatChat? DatChat integrates blockchain technology into existing apps, like iMessage on the iPhone.

It acts as an end-to-end encryption platform using blockchain’s powerful cryptology capabilities. It’s also a Messenger and Private Social Network aiming to onboard users into its own decentralized applications (dapps).

Throughout DatChat’s platform, users can modify and delete messages, hide them, add screenshot notifications, and control triggers to make them disappear, like time limits or view counts.

Of course, none of these features are new (nor were they in 2014). SnapChat (SNAP) was founded in 2011 with a similar idea, and it has nearly 300 million monthly active users (MAU) compared to DatChat’s user base under 25,000.

This highlights a problem in blockchain technology – it’s trying to replace solutions without proving it can offer a better alternative. It’s hard to ignore that blockchain adoption is much lower than crypto investors would have you believe.

DATS IPO: DatChat Inc (NASDAQ:DATS) held its IPO in 2021 when bitcoin was surging towards all-time highs. 

 

The IPO buzz must be contrasted with reality, however. After seven years on the market, the app failed to gain any real traction.

It received no funding during the cryptocurrency hype period either. Instead, it filed for a public offering and is struggling to stay above penny stock territory (which is officially $5 per share).

It’s not just DatChat struggling to gain traction – thousands of blockchain-based cryptocurrency projects were created over the past 15 years, and few have found much traction in the crowded mobile app space.

The Empty Promise of Blockchain

When you listen to someone pitch a blockchain or crypto project, they often focus on the whitepaper and market cap. Many of them are quite impressive – on paper, this $2.6 trillion industry outperformed the traditional stock market and attracted over 20 million people to invest.

These platforms promise to revolutionize everything from AI and IoT to supply chains. They aim to disrupt the status quo with decentralized blockchain alternatives.

But owning a cryptocurrency doesn’t mean you’re using the underlying blockchain product. Investment is only a part of the equation; enterprise and user adoption are crucial, and sadly the adoption rates haven’t been stellar over the past decade.

Etherscan shows over 157 million unique Ethereum addresses, for example, but there are barely 2 million users on its dapp ecosystem. That’s surprisingly low for a platform with a nearly-$500 billion market cap, and even using that exaggerated measuring stick makes DatChat’s $152 million cap feel pricey.

That doesn’t account for the greater app market of which blockchain is simply one subsection.

Advertising Business Model Hurts DatChat

There were over 218 billion mobile app downloads last year, resulting in about $20 million per year spent on them. Meta (FB) is the largest with 2.74 billion users, and its WhatsApp platform is in third place with 2 billion users. Advertising across these platforms (and Instagram) is the biggest contributor to Meta (FB) profits. 

Advertisers pay by cost per thousand (CPM) for their ad space, which works well for Meta’s billions of users but it’s unlikely DatChat is logistically capable of generating much profit from its 25,000 users.

On its current trajectory, DatChat hasn’t yet uncovered a significant revenue stream – it seems to be chasing the social industry more than leading or disrupting.

DatChat Revenue Is Zero

DatChat has yet to generate a profit. In fact, it lost nearly $1 million in its latest quarter, which is likely why it launched the IPO to raise funding. Earnings per share last quarter was -$0.06, compared to -$0.40 in the same quarter of the prior year.

Even if DatChat manages to grow its user base (which it’s attempting by advertising on other platforms, like Barstool Sports), it’s still not clear what the path to monetization is. The company has not yet generated any revenue, and it’s simply pouring money into an unproven machine at this point.

Undoubtedly, DatChat is operating in a tough market – social media is both crowded and facing tougher regulations around the globe moving forward.

Social Media Scrutiny

Meta (FB) is in the media and government crosshairs because it owns three of the largest social networks in the world. However, many of the criticisms aimed at it also apply to the broader social media market, including the rising social audio segment.

Adding blockchain to the equation fails to resolve any of the issues of privacy, toxicity, and misinformation permeating through these platforms. DatChat is simply promoting the same features we already saw in spades through apps like Signal and Snapchat.

Reinventing the wheel on a blockchain doesn’t transform the paradigm.

Is DatChat Overvalued: The Bottom Line

DatChat is a blockchain-based secure social media and private messaging platform. It promises to revolutionize the industry by adding a handful of missing features to default messaging apps like iMessage, but it is not yet sufficiently disruptive to attract a large user following.

The company has lofty ambitions, but it still needs to gain traction and find a way to grow revenue if it expects to maintain its public listing and stay above the penny-stock waters.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.