x
Breaking News
0

Snap's IPO: What Went Right -- And Wrong

By Investment UStock MarketsMar 08, 2017 11:31AM ET
www.investing.com/analysis/snap's-ipo:-what-went-right----and-wrong-200178215
Snap's IPO: What Went Right -- And Wrong
By Investment U   |  Mar 08, 2017 11:31AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Snapchat parent company Snap Inc. (NYSE:SNAP) went public last week. The much-anticipated IPO was a positive note on an otherwise gloomy day in the stock market.

Most major indexes declined on the news of IRS raids at Caterpillar (NYSE:CAT) offices. But Snap stock shot up by almost 50% from its initial price, rising from $17 to $25 in a matter of hours. It quickly fell back toward $20 in subsequent days.

Snap's Performance
Snap's Performance

By the numbers, the Snap IPO was a resounding success. But that doesn’t necessarily guarantee that Snap is on the way to becoming the next social-media titan. Let’s look at everything that went right -- and wrong -- in this historic launch.

What Went Right?

When’s the last time you heard about a 44% one-day gain? (penny stocks don’t count.)

The IPO accounted for about 10% of total NYSE trading volume on March 2. With a market cap of more than $20 billion, Snap is now twice the size of Twitter (NYSE:TWTR). To put it in less technical terms, they made a boatload of money.

The IPO had plenty of hype, to be sure. But it wasn’t just hype fueling last week’s rally. Growth and popularity also played big roles.

Snapchat broke 150 million daily active users last year. Despite a recent slowdown in user growth, the company has managed to gain a few million eyeballs every quarter since 2014.

Snapchat Daily Users
Snapchat Daily Users

The company isn’t profitable yet, but it has seen revenue grow at a similar pace to daily active users. And perhaps more importantly, it is cutting costs in an innovative way.

Many tech companies are dropping billions on grandiose corporate headquarters. Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) are two of the latest companies to develop this expensive “edifice complex.”

Snap, by contrast, doesn’t have a huge campus and doesn’t want one. It has renovated a few buildings in its native Venice Beach, but is not demolishing entire city blocks to build.

What Could Still Go Wrong?

Unfortunately, Snap’s presence in Venice Beach is causing a stink with the locals. Gentrification has become a big concern for middle- and working-class Californians. Many natives are concerned that the expanding presence of a multi-billion-dollar company could eventually price them out of their own neighborhoods.

As a result, Snap faced all-day protests at home during its IPO. Locals marched throug the city with signs reading “Snap Killed the Mom-n-Pop.” That’s a reference to the many small businesses that have been pushed out of Venice Beach by Snap’s renovations.

What’s more, the social-media unicorn’s financials aren’t all rosy, which is part of the reason why Snap shares have fallen by double digits since the IPO. The company isn’t just unprofitable, it’s burning money. Snap posted a loss of over half a billion dollars in 2016. And while its user base still grew that year, the pace of growth slowed dramatically.

That may have something to do with rival photo-sharing service Instagram, a Facebook subsidiary. Instagram has copied many of Snapchat’s most popular features, such as Stories (a sort of public video diary).

Since the IPO, some commentators have expressed concern that competition from the likes of Instagram has contributed to Snapchat’s slowing user growth. Those concerns have put downward pressure on the stock in recent days.

More broadly, analysts aren’t convinced that Snap can right the ship fast enough to justify its valuation. There isn’t a single analyst who rates the stock a “Buy.” And there are at least two with outright “Sell” ratings on the stock. Some analysts are setting year-end price targets as low as $10 for SNAP. That’s well below the $17 IPO price and the $24 market-opening price.

The Snap IPO definitely made lots of money for the company and its founders. And Snapchat is certainly a popular app, especially with teens -- a highly desirable demographic for advertisers. But the company is still a long way from becoming the next Facebook. Only time will tell if last week’s IPO was really the birth of a new social-media superpower.

And if Facebook stock is any guide, investors don’t need to be in a rush to get in on the speculation. The stock is a juggernaut now, but Facebook fell more than 50% after its much-hyped IPO in 2012. Investors would be wise to give Snap shares a similar chance to shake out.

Thoughts on this article?

Snap's IPO: What Went Right -- And Wrong
 

Related Articles

Snap's IPO: What Went Right -- And Wrong

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
Write your thoughts here
 
Replace the attached chart with a new chart ?
Post
Post also to:
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Brad Smith
Brad Smith Mar 09, 2017 11:01PM GMT
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you for this well written piece. I'm not at all surprised by the volatility experienced by SNAP's IPO considering the past tech IPOs. Though in regards to SNAP becoming the next FB, I'm very skeptical of this happening. At this current time, I don't see what SNAP offers that FB cannot. In fact, FB has much more to offer on top of what SNAP currently offers. Keep in mind both SNAP and FB are in a similar niche competing for advertisement revenue that both companies heavily depend upon. The difference here is that FB has multiples of SNAP's user base. The leverage FB holds is enormous. FB will likely overshadow SNAP in the foreseeable future.
Reply
0 0
Kim boesgaard Lauritsen
Kim boesgaard Lauritsen Mar 08, 2017 11:29PM GMT
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ty for that update...
Reply
0 0
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email