In the biggest tech IPO since Alibaba in 2014, Snap Inc. has managed to beat expectations and saw its share price skyrocket during the first few days after going public. Initially offering its stock at $17 per share, the company closed its first trading day up 44%, and has since seen even more growth. However, despite these impressive results, conservative investors might say that it is too soon to declare Snap a winner.
Snap Inc., makers of Snapchat, has been one of the hottest companies in the tech sector recently, attracting a lot of attention, and solidifying itself as a multi-billion dollar company. Since its inception in 2011, the company has amassed more than 150 million daily active users, and has seen giants such as Facebook making bids to acquire it.
Despite producing a steady revenue stream in recent years, the company is far from being profitable, and registered a loss of more than $500 million in 2016. Moreover, before going public, Snap has gone on record to say that it might never attain profitability. However, this is quite common for tech companies who focus more on user-acquisition, rather than generating revenue.
Early SNAP boom made investors happy
Since going on sale in the morning of March 8, 2017, SNAP added more than $10 to its share price, peaking around $29 and settling just over $27 when trading closed on Friday. This 58% increase in value made the IPO’s underwriters and early investors happy, but could not really serve as a true indicator for the SNAP stock’s future.
Despite the optimistic tone seen in the market, some analysts still claim that the company’s valuation is exaggerated, and that it might not hold its current stock price. Snap is often compared to Twitter, which saw its stock price soar more than 72% on the day of its IPO, but went below its initial stock price two years later. On the other hand, Facebook, an extremely profitable company, gained a mere 0.61% on the day of its IPO. With so much speculation involved, it is quite possible that we will see great volatility in Snap’s stock price in the near future.
Where will snap head next?
It is still very early to conclusively assess Snap’s future, however, there are a few scenarios that could be possible:
- The Twitter scenario: When Twitter went public in 2013, its stock price rose rapidly and closed more than 70% higher. However, after not being able to monetize its user base, and having to make major changes to its management team, it reverted to losses and is today has more analysts recommending to sell or ‘short’ the stock. If Snap goes the way of Twitter, and fails to monetize within a reasonable timeframe, it is possible that its shareholders will lose patience and drive its share price down by dumping stocks.
- The Facebook scenario: Perhaps the complete opposite of the Twitter scenario, Facebook has proven to be incredibly proficient at monetizing its user base, and expanding its operations. Even though both Facebook and Snap operate in the social media space, it is important to remember that Facebook was already profitable when it went public in 2012. That being said, if Snap does find a way to monetize its users quickly, develop new technology, and make a profit in coming years, it could become a success story, and see its market cap increase.
- The LinkedIn scenario: The business-oriented social network went public in 2011, and saw its stock price more-than double that day. The stock’s price had its ups and downs, and peaked in 2015, reaching an all-time high. However, after sharing a weak forecast in early 2016, the company saw its share price tumble more than 40% in a single day. Despite that, by then the company has established itself as a leading social network, which is why it was eventually acquired by Microsoft. News of the acquisition sent the share price flying, and it has remained stable since. While not the declared gameplan for Snap, it is possible that it might eventually be acquired by Facebook or one of its competitors as well, a scenario that will most-likely give its shareholders a great return on investment.
Is SNAP a good investment opportunity?
While showing great initial results, there’s still much uncertainty surrounding Snap. It could be assumed that the company will be given some leeway, as it has openly declared it is not geared towards generating a profit in the near future. Therefore, it is likely that any early news of monetization plans could drive prices up. At the same time, Snap’s main strength is its growing user-base, and popularity among younger users, therefore, as long as it maintains that trend, it will be living up to its promise in the eyes of its investors. That being said, if Twitter has taught us anything, it’s that eventually investors lose patience, and user-acquisition which comes at the expense of monetization can only lift the company for a limited time. Either way, in the coming weeks and months, Snap will most-likely present interesting opportunities for long and short-term investors alike.