MENU

Snap IPO: Snapchat Surges 44 Percent In First Trading Day, But Analysts Say It Will Plunge

Close

Snapchat's parent company, Snap Inc., had quite a sterling day during its debut on the New York Stock Exchange, or NYSE. After pricing the IPO at $17 per share on Thursday, March 2, the stock opened at $24, then closed the day at $24.51, rendering a 44 percent bump for the folks who bought it the day prior.

Snap Experiences First Trading Day Bump

Of course, like with all IPOs, not everyone was privy to accessing Snap's IPO price because this is typically reserved for a minute group of institutional investors and high-net worth bigwigs in good terms with banks.

Snap's NYSE debut mirrors Twitter's, which went public back in 2013. Twitter landed itself a solid first trading day, followed by less-than-stellar results in the succeeding months. Facebook, meanwhile, was treated to a rough first day when it went public but flourished as it went forward.

Better Now Than Later

Snap decided to go public at a particularly interesting time for the company. As TechCrunch notes, Snap went public earlier in its monetization, aberrating from steps taken by other companies with alpine valuations, presumably because it's wiser to go public before the market sees the company as overvalued.

Snapchat, however, went public at a time of a decline in its growth, possibly propelled by Facebook-owned Instagram borrowing "Stories," a feature Snapchat championed. Similar versions of Stories have now made their way onto other apps Facebook owns, including Messenger, and even WhatsApp.

All told, Snap is still unprofitable, even with its revenue growth.

Snap's Stiff Competition

Snapchat's headline feature is, oddly, disappearing photos, which many users initially found baffling and gimmicky, because online space permits virtually anyone to create, share, and plaster their photos on social media and have them remain there as long as time allows. Snapchat banks on the ephemeral nature of posts — content disappears after 24 hours. Needless to say that while confusing at first, it has proven to be very popular, especially among millennials, which advertisers regard as prickly targets.

"Young people who are of the most interest to advertisers spend a lot of time on social media," said Duncan Stewart, director of research for technology, media, and telecommunications for Deloitte. But they are so used to consuming on-demand content that they see fewer and fewer ads, he told CBC News.

Analysts Spell Bleak Prospects For Snap

Analysts, however, predict that Snap's stock will plunge. As per a report by Los Angeles Times, Brian Wieser, an analyst with Pivotal Research Group, said that "Snap is a promising early-stage company," but faces a number of roadblocks, including "aggressive competition" and a "core user base that is not growing by much."

He also notes that investors will learn that Snap has what appears to be a sub-optimal corporate structure helmed by a management team that lacks experience transforming a product into a successful company.

Another analyst, Anthony DiClemente of Nomura Instinet, expects Snap's stock to dip. He gave its stock a "reduce" rating in his initial report and a price target of $16 a share. Furthermore, DiClemente noted that "upside in [SNAP] shares is limited" by a number of factors, which includes competition from rivals and Snap's decline in daily active user growth.

Snap's IPO was one of the most anticipated public offerings for a technology company since Twitter's. Evan Spiegel and Robert Murphy, Snap cofounders, will retail control over all matters at the company — class A stock being sold in the IPO comes with no voting rights. Snap holds the ticker symbol "SNAP" on the NYSE.

ⓒ 2018 TECHTIMES.com All rights reserved. Do not reproduce without permission.
Real Time Analytics