Shares in Snap Inc, the parent company of the popular messaging service Snapchat, rose over 40% during their debut on the New York Stock Exchange on Thursday, making billionaires of it's two founders, CEO Evan Spiegel and CTO Bobby Murphy. By lunchtime the company was valued at $29.3bn, twice the value of Twitter and on par with Electronic Arts and Panasonic.
Originally expected to be priced at $17 -$18 per share, the stock was 12 times oversubscribed and resulted in the opening price soaring to $24. The successful opening has given confidence to investors expecting a further rush in technology stocks this year, with Uber and Airbnb pushing to go public in similar fashion.
However, this valuation is still way short of the two major players in the market, Google and Facebook, valued at $590bn and $400bn respectively.
Company overview
Released initially in 2011 by the Stanford graduates, Snapchat is a messaging service that allows users to send and receive images that are short-lived and deleted after a number of seconds. Initially unappreciated by fellow students at Stanford, the app has garnernered popularity at a rapid rate.
Latest figures show that up to 158m users interact with the application on a daily basis, the largest user base being those in the 18-24 age group. Over the years, Snapchat has added a number of features such as Stories, allowing users to upload a collection of photos that remain available for viewing for a 24-hour period, rather than the shorter 10 second time frame for single picture messages sent to specific contacts.
The Stories aspect, used by 25% of users daily, has become so popular that other competitors such as Instagram were forced to adopt a similar aspect within their offering.
Snap Inc. reported revenues of $405m in Q4 of 2016, up from $58m in 2015. However, losses have also nearly doubled over the same period. Facebook made an offer for the company in 2013 ($3bn) when it consisted of six full-time staff members, each of whom are now billionaires in their own right.
Whilst the future looks bright, it remains to be seen where and how the company will begin moving into profit, a success that Facebook has achieved wonderfully.
Predictions
As mentioned, the company will now face significant challenges to prove to investors that their money has not been wasted. With growth slowing and profitability seemingly a long way away, Snap Inc.
remains far away from companies such as Google and Facebook. Warwick Business School professor John Colley told the Financial Times that he believes Snap Inc. is "benefitting from institutions and investors being awash with cash." in other words, the investment is still a risky prospect as the high valuation is a representation of it's oversubscription rather than actual business potential and opportunities. Shareholders lucky enough to have joined the company have also been offered negligible voting rights.
The company has, as of yet, not shown how it plans to make a profit, especially with declining growth. It remains to be seen whether such investments will usher in a new dawn in technology company success or result in the beginning of another dot com bust.
