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Should You Avoid Snapchat For Now Or Jump The Gun?

|About: Snap Inc. (SNAP), Includes: TWLO

Summary

Overpriced IPO.

Long term investors should wait for few earnings results.

Short term traders can make decent profit on either side.

Initially priced at $17 per share Snap, Inc. (NYSE:SNAP) debut on New York Stock Exchange (NYSE) on Thursday March 2nd 2017 at $24 per share which is more than 41%+ jump from it's initial pricing. That's an extremely strong demand for shares of a company that lost more than half a billion dollar last year and is issuing non voting class A shares to the public.

Snap, Inc. which bills itself as a camera company according to their prospectus filed with the Securities and Exchange Commission(SEC) and plans to reinvent the camera in a way that has never been done before to enhance how people live and communicate.

I've never used Snapchat so I can't tell you first hand about how it could have enhanced the way I live or how I communicate but what I can tell is that their revenue for 2016 jumped to $404 million along with 158 million daily users. What Snap is selling to the public is plain and simple, it's growth. Some analyst even expect Snap, Inc revenue to soar to $2 Billion Next Year. Only time will tell where the revenue would end up in a year but one has to give Snap the credit it deserves for monetizing their user base to it's full potential recently as we've noticed with the revenue growth year over year.

Snap is currently valued at 28 billion, that's 56 times their revenue from 2016.

That's more than four times as high as Facebook's price-to-sales ratio, which is 14. It's 10 times as high as Google's parent, Alphabet, which trades at just over six times revenue. Amazon trades at a mere three times. Even high-flying Netflix trades at seven times. 1

Timing is everything

They say, "Timing is everything in Life" and I'd add that similar saying applies to investing, trading and also going public. The book runners did an extraordinary job with the IPO, learning from their previous blockbuster Facebook IPO debacle.

The market conditions are fantastic right now with SPY and DOW making record highs on president Trump's promises among other things. Snap, Inc couldn't have picked a better time.

There is a saying in Wall Street -

Buy the rumor, sell the news.

Right now we're aggressively in the buying phase since post election so this euphoria is destined to continue until we start hearing news i.e. the details.

So where does this leave Snap?

Every company has a full control of their destiny. If we go back in time, Facebook was able to overcome their disastrous IPO and build on Mobile Ad revenue exponentially.

But if history is of any lesson, investors should be extremely cautious while short term traders can make decent profit. Let's take a look at Twilio, Inc (NYSE:TWLO) IPO as an example even though it's not in the same business as Snap, it can help understand the Tech IPO climate.

Initially expected to debut at the price range of $12 - $14, Twilio set it's IPO price at $15 and opened to the public at $24 and closed at almost $29 2.

The euphoria and exuberance went mile high and topped out at $70 and change within three months since going public. Right now TWLO is trading at low $30 still above it's IPO debut but you can see the opportunity that over hyped IPOs can provide for short term traders.

Closing Remarks

I think the bankers have done a great job with this IPO and they would try to do what it takes to keep this price afloat for at least the next few months. Personally, I'm not biased long or short but interested to join the trend whenever and whichever way it emerges for the short term. If you are a long term investor it may be a better idea to watch few Snap earnings results rather than paying this exuberant premium now.

Originally published at blog.buysellshortcover.com

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.