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Snap Inc’s shares surge in first day of trading but will its value hold up?

Friday, March 3, 2017 3:19
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Snap Inc. (NYSE:SNAP), the owner of popular messaging app Snapchat, started its first day of trading with shares surging 44% to about $24 each yesterday and some analysts expect the rally to continue.

The company, founded by Evan Spiegel and Bobby Murphy, made its debut on the New York Stock Exchange with a valuation of $28bn.

The initial public offering (IPO) had been priced at $17 per share, valuing the business at $24bn, above the initially touted range of $14 to $16.

Some analysts expect shares to rise further in the second day of trading.

Naeem Aslam, chief market analyst at Think Markets UK, said: “What an IPO, perfectly executed. The demand is there and we think the stock could easily touch $27.

“Looking from the demand perspective, 30 million shares in the first minute tells you everything you need to know. The demand is simply too strong. Everyone is still very excited about the stock and wants to have this position.”

Snap’s successful flotation comes despite having never made a profit. The popular mobile app, which allows users to send photos and videos that disappear shortly after being sent, widened its full year net loss to $514.6mln in 2016 from $372.9mln in 2015.

Still revenues jumped to $404.5mln from $58.7mln the previous year. On average, 158mln people use the app daily with more than 2.5 mln Snaps created each day.

Investment potential …

While some analysts have argued Snap may be overvalued considering it is yet to make a profit, the company has talked up its revenue potential and popularity among young people.  

“Even if it’s not worth the price tag, Snap is in high demand on its first day of trading anyway because investors have been so starved of high-growth potential IPOs,” said Jasper Lawler, senior market analyst at London Capital Group.

“‘Unicorns’ (tech start-ups valued over $1bn) like Uber and Airbnb have opted to stay private, limiting the supply of publicly investable firms. The desire to invest in the ‘next Google’ captures the imagination of every IPO investor.”

Potentially adding value to Snap’s product line, the company is reportedly working on making a drone that could help users take overhead videos and photographs. It is unclear whether the drone would become available to consumers, The New York Times reported.

The company last year changed its name to Snap from Snapchat in order to expand its business beyond the mobile app with various products including its Spectacles sunglasses that record short video clips.

Snap versus Facebook and Twitter

Investors will be hoping Snap’s IPO doesn’t follow in Twitter Inc.’s (NYSE:TWTR) footsteps.

Twitter’s shares gained in its IPO in November 2013 but its value has flopped since.

The social network’s IPO raised $1.82bn in November 2013 after selling 70mln shares at $26 each, above the offer price of $23 to $25 each. The company’s shares are now worth just $15.79 each.

Facebook Inc. (NASDAQ:FB) told a different story in its February 2012 flotation. The group’s shares closed at $26.81 a week after it began trading with a $38 offer price but have since recovered at $136.76 each.

Hargreaves Lansdown equity analyst Nicholas Hyett said recent tech IPOs have been a mixed bag - Facebook has proven a success, but Twitter is finding life as a listed company tough so far.

“With around 150m daily users, Snapchat is more popular than Twitter,” Hyett said.

“However, the investment case is about more than monetising the app. The group is pitching itself as a camera company, and hopes that innovations such as Spectacles, essentially sunglasses that can record video, can transform how we see the world. For now though it is still making significant losses, over $500mln last year.”

Story by ProactiveInvestors


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