On Thursday, March 2nd, Snap Inc., the company behind Snapchat, became a publicly traded company on the New York Stock Exchange (NYSE), with the stock symbol SNAP. This comes after a better than expected initial public offering (IPO) of $3.4 billion. It marks the first technology IPO of 2017, the first social media network IPO since Twitter in 2013, and the largest technology IPO since Alibaba in 2014. All of this puts a lot of pressure on Snap to perform well in the market.
Snap Inc. first confidentially filed for an IPO with the U.S. Securities and Exchange Commission in November 2016 before later confirming the IPO filings publicly on February 2nd, 2017. An initial public offering is one of the first steps to getting a privately-owned company onto the public stock market. It also serves as a good way for companies to raise money, allowing them to further expand their operations. IPO stocks can be a bigger risk to investors, as the stock is still unproven and unpredictable. One might consider investing in an IPO similar to pre-ordering a video game; you are purchasing a game before you know whether it is good or not.
Many analysts speculated at Snap’s eventual IPO when the company quietly brought Stanley Meresman on as a board member in the summer of 2015. Meresman had previously worked with the likes of LinkedIn and Zynga in preparing and guiding them through the IPO process. These speculations were reinforced when Snapchat renamed itself to Snap Inc. in September 2016, a move to distinguish between the light-hearted fun of their products (the Snapchat app and the Spectacles glasses) and the more serious corporate structure behind the products.
While the company’s revenue has grown from just $58 million in 2015 to an astonishing $404 million in 2016 (thanks to its recent advertising initiative), it has yet to turn a profit. Losses rose from $373 million to $514 million over the same period. This had led many to believe that Snap is a poor long-term investment, some even going so far as to claim that Snapchat may no longer exist in several years. Brian Wieser of Pivotal Research Group called Snap “significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity.”
Still, many have purchased a stake into the company. Drawing parallel to Snap’s user demographic, many of those who’ve bought shares of the company have been young adults. In an interview with USA Today, Ryan Eshaghi, a freshman at the University of California, Irvine, who bought 20 shares, said, “I see the company growing a lot.” This sentiment was shared by several other young adults interviewed by USA Today.
What is most striking about Snap’s IPO is the number of millennials who have made their first foray into the stock market thanks to Snap. Robinhood, a stock-trading mobile app, said that Snap’s first day on the market was their biggest day ever, with an unprecedented number of new user accounts and 43% of active users purchasing Snap shares. The average age of Robinhood users who bought Snap stock is a mere 26, four years younger than Robinhood’s average user age of 30. This only furthers the conclusion that Snap’s new shareholders are predominantly young adults rather than the middle-aged adults who are the norm across Wall Street.
After just under one week on the open market, Snap’s stock price has reached a high of $28.84 and a low of $20.80. Many of these changes have come from sudden rises and falls in the price (many occurring in the after hours) rather than a steady increase or decrease. Although it is not uncommon for IPOs to see their price change dramatically in the first few weeks of their time as a publicly-traded company, the demographic of Snap’s shareholders and their experience level when it comes to investing in stocks could potentially lead to a prolonged period of volatile stock price for Snap.
There is no way to tell for certain what will happen to Snap’s stock price in the near future but analysts continue to do their best to predict it. Will the current unpredictability of Snap’s stock price scare inexperienced millennials into selling early? Will the price see a longer-than-usual period of dramatic changes for or will it stabilize? In a note to investors, Laura Martin, an analyst at Needham & Co, said, “Academic literature suggest that the sexier and more glamorous a company’s IPO, the more likely it is to be overpriced at its IPO date and to suffer meaningful downwards earnings and valuation revisions in the first eight quarters after it
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