Snap co-founders Evan Speigel and Bobby Murphy rang the opening bell of the New York Stock Exchange Thursday, marking the stock market debut of the company they founded in 2011 out of their Stanford University dorm rooms.
Snap, the parent company of the ephemeral messaging service Snapchat, now trades as SNAP and started its life as a public company with an estimated value of $24 billion, the largest technology debut since Alibaba’s in 2014. The company saw a healthy pop in its first moments of trading, opening at $24 – roughly 40 percent higher than the company’s price of $17 per share, and far higher than the company’s original $14-$16 range.
The price is higher than Snap had originally predicted, indicating that the company is seeing great demand for its initial public offering. Some are hoping that Snap’s debut can revive a lagging IPO market, as Barron’s reported, and encourage other tech firms to make their debuts.
Snapchat, Snap’s main service, has a loyal user base of 158 million people who use it to send 2.5 billion messages every day, according to its initial public offering filing. While it has yet to profit off that popularity, it is growing its revenue, which was $404.5 million in 2016. The firm has invested substantially in working with media partners – including The Washington Post – to deliver news and analysis to its predominately young audience.
The company’s growth has been largely driven by younger users, who spend over 30 minutes on it per day, according to the company’s filing.
Snapchat’s growth, however, is being driven more and more by older users, according to the research firm eMarketer. The firm projects that 6.4 percent of Snapchat’s users this year will be between 45 and 54, showing that it’s expanding its appeal among older users – even as fewer younger users join the network.
But some analysts still caution that Snap has to prove itself. James Gellert, chief executive of the analysis firm Rapid Ratings, expected Snap to crackle with a post-IPO pop, thanks to tech-focused investors hungry to get their hands on something new. But, he said, Snap has a way to go to prove itself as a stable investment.
“Snap is relatively young and it’s yet to generate profits. The typical IPO tech investor will say that’s fine and it doesn’t matter,” he said. But from a long-term perspective, Gellert said, being able to demonstrate the ability to generate profit and make money on assets is key for a company’s financial health.
Snap also runs some risk of getting the wind taken out of its sails by competitors. Facebook – which famously tried to buy Snap (then Snapchat) for $3 billion in 2013 – has introduced some Snapchat-like features to it’s Instagram social network.
According to analysis from the analysis firm 7Park Data suggests that the launch of Instagram Stories – a feature very similar to Snapchat’s Story product – hurt Snapchat’s growth. Snapchat’s daily users fell off after Instagram introduced its version Stories, indicating that Snapchat’s user base can be lured away.
That analysis seems to be backed up by Snap itself, which reported in a Securities and Exchange Commission filing that its user growth was “relatively flat” in the final quarter of 2016. The company said that fact that its competitors may “mimic our products” could be a risk factor for it in the future.
Snap, Gellert said, is in a weaker position at this point in its development than Facebook, which has had considerable post-IPO success. Instead, he said, it has more in common with Twitter, which has struggled since going public.
His suggestion is that Snap look at both Twitter and Facebook to understand the challenges it will face as a social network with the responsibilities of a public company.
“Snap has a chance to look at the good and the bad, the positive and negative choices of companies that come before them,” Gellert said. In Twitter and Facebook, he said, Snap has two “divergent role models, if they are students of the market.”
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