Putting a Filter on the Price? The Snap(chat) IPO

When the New York Stock Exchange (NYSE) opened at 9.:30 am on 2 March, all eyes were focused on one stock: SNAP. Snap Inc, the company in ownership of the popular image-messaging app, started trading at $24 per share. The initial public offering (IPO) was first valued at $17 a share, but the price rose quickly as Snap Inc floated on the NYSE.

Snap Inc’s IPO was one of the most highly anticipated IPOs in technology, rivalling the Facebook IPO and the Chinese company Alibaba. Late last year, Snapchat reported that it had over 158 million daily active users and engaged the key demographic of 18 – 30 year-olds. Over 10 billion snaps are viewed daily. However, despite its user success, Snapchat has not replicated this success financially.

In 2016, Snap Inc reported a net loss of over $500 million. This was up from the 2015 figure of $370 million. So it can’t be a surprise that just a fortnight after its first-day trading, Snap Inc’s price has fallen from a high of $27 per share to just $20 per share. While this drop has no meaning to the value of the company (two2 weeks is not enough time to critique the future success of a company after its IPO), it has some analysts sceptical of the future of Snap and the likelihood of profitability in the future.

Interestingly, Snapchat has been quickly increasing in revenue despite its growing financial loss. Its average revenue per user was $2.15 in the last quarter of 2016, having grown from $0.67 in the firste 1st quarter of 2016. However, this represents the growing business of Snapchat selling sponsored GeoFilters, advertisements, news and media on its app to businesses indicating the future for financial upside to the company.

So, should you invest in Snap Inc? It should be noted that anyone in Australia looking to invest would have to pay particular fees and taxes due to Snap Inc being listed on the NYSE rather than the ASX. Any potential investors should also consider the competition – Facebook and Whatsapp. While both have their history rooted in instant messaging, Facebook’s recent acquisition of Instagram and its new feature of ‘sStories’ makes it a direct competitor against Snapchat. The instant image-messaging market is by no means saturated, but with Facebook making significant acquisitions such as Instagram, there is potential for them to take the market away, especially considering its wider and larger user base.  

Despite all of the above, Snap Inc remains an incredibly exciting stock to watch. CEO Evan Spiegel is uncommonly innovative and has led the company for several years despite his only being 26 years old. An investment in Snap Inc should be considered an investment in the young CEO more broadly.

The Snap Inc IPO does represent a growing trend in technology and business. Companies such as Facebook and Snap Inc have the ability to shape the future of social interaction, with investors reaping financial reward. While Facebook has been successful on the NYSE; Snap Inc should move to profitability sooner rather than later to avoid floundering as a company. Snap Inc. has the captured a very niche market and has loyal consumers. The only question that remains is: will it be able to hold its own against the Titans that loom over it?