Snap IPO - A Facebook Success Or A Twitter Failure?

| About: Snap Inc. (SNAP)

Summary

Snap made its market debut at New York Stock Exchange.

Its closing price was 44% above its initial value of $17.

Will Snap go the Twitter way or take the Facebook path?

Snap (NYSE:SNAP) made its market debut on the New York Stock Exchange on Thursday, closing at $24.48 - 44% above its initial value of $17.

Last year, The Wall Street Journal had reported that the IPO could value the mega-unicorn at $25 billion or more. The current price puts the company at a market capitalization of $28.3 billion.

For many investors, Snap's IPO could resemble the path of either that of Facebook or Twitter. But such comparisons may seem a bit early for mega unicorn, Snap - especially since the IPO market faced a slowdown last year. 2016 had been a quiet year for IPOs, with as many as 105 US companies going public - a decline of 62% from 2014. According to the annual review by Renaissance Capital, US IPOs raised less than $19 billion, a decline of 37% from 2015 and the lowest level since 2003.

With such a slowdown, Snap's IPO could revive the IPO optimism and allow investors to gauge at some of the hottest technology stocks. Snap's IPO comes at a time when markets are relying heavily on financial deregulation and tax reforms under the new Trump administration. SPX has already seen a surge of more than 11% since the November 8 elections last year. On Wednesday, Dow Jones Industrial Average, Nasdaq and S&P 500 were seen at record highs.

With top investment banks like Morgan Stanley and Goldman Sachs involved in Snap's IPO, comparison to companies like Twitter and Facebook are only natural.

In 2013, Snap rejected a $3 billion acquisition offer from Facebook and today, it will be in direct competition with the biggest social media giant. When Facebook first went public in May 2012, it was the largest tech IPO in US history and offered a price of $38 per share, raising $16 billion in that offering.

But the stock soon fell as it opened with share prices crashing more than 50% over the following months. Over a period of time, Facebook acquired more than 50 companies including WhatsApp and Messenger and catered to a wider audience with innovative features and user-friendly technology. Through Oculus VR in 2014, Facebook plunged into the arena of Virtual Technology and today, it is the first social network to surpass 1 billion registered accounts, currently sitting at 1.87 billion monthly active users. Its current stock price trades a little more than three times its IPO price.

Facebook will prove to be a tough competition for Snap, especially after some new features on its acquired platforms that closely resemble Snap's features. Facebook's WhatsApp recently introduced a feature that allows its users to update their statuses and use pictures or GIFs that vanish after 24 hours. Similarly, Instagram introduced similar story-like features, which could potentially attract Snapchat's daily users.

But, for Twitter the story took a different turn.

In September 2013, Twitter shares surged more than 80% on its IPO. Due to a high investor demand, the share price of Twitter closed well above its $26 IPO price at $44.90. But today it trades as low as $15.79. The company's value has declined significantly - by more than half from its opening price, and even more from its all-time high near $70. The micro-blogging platform has faced huge challenges over the past few years. It has failed to find potential buyers with major firms like Alphabet (NASDAQ:GOOG), Disney (NYSE:DIS) and Salesforce (NYSE:CRM) rumored to have backed off from closing a deal. Twitter also laid off many workers, reportedly as many as 300 workers in October 2015. Additionally, the number of active users have remained stagnant with as many as 319 million in 2016.

Snap's successful IPO may reflect the optimism amongst its engaged audience and its loyal user database of 158 million people. In 2016, the company showed an increase in its revenue from $59 million in 2015 to $404.5 million in 2016.

However, a company's good market debut tells very little about the future course of any firm. While Snap has a strong potential to prove itself to tech investors, it also faces competition from established names like Facebook and Google. For it to remain at par, the company will need to add more value in the coming years and prove that it has a business model that can create value for long term investors through its first quarter earnings.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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