Social media companies have experienced mixed results in the public markets. That puts Snap below its first day opening price of $24. The losses may be a sign that some investors are having doubts about the company's long-term potential, stock analysts say.
Anthony DiClemente, an analyst at Nomura, explained why he is cautious on the company in a research note last week. The messaging app, launched in 2011, has gained a massive and loyal following among teens and young adults.
But should this early turbulence give investors pause? "That alone should lead to share price performance this year".
This week's selloff has wiped out more than $9 billion of the company's market capitalization from Friday's high above $34 billion - a valuation above that of Hewlett-Packard and just below eBay's. This is how the current Wall Street ecosystem works, and it's a mechanic that fundamentally screws over IPO-ing companies. As we had highlighted in a previous post, we thought SNAP was an IPO you should let go. Snap lost $515 million a year ago, according to its filing with the Securities and Exchange Commission, and its new user growth slowed at the end of 2016. Investors, employees and the company itself ended up being worth 50% than what the expectation was before Thursday - as set by Snap and its underwriters.More news: Tottenham 3-2 Everton: Spurs hold on for win after Kane brace
The app has added the ability to "deep-link" users directly from a Snapchat ad to an app that they already have downloaded on their phone, according to Mashable. In comparison, Facebook's last reported video count was 8 billion daily views. Some analysts question whether Snap can continue to gain customers or grow revenue amid steep competition from other social-media companies. Having a say in how the company is run would remain exclusively with the founders and some initial investors.
In the long run, however, it is likely to be a different story. Of six companies that began "covering" the stock, 4 rated the shares a "sell", with the other 2 rating it a hold. Now, though, they are trading at about US$136 a share - 259% above the IPO price - and the company has actually been able to generate profits. Short selling, or shorting, a stock involves an investor selling a stock that they don't own, usually by borrowing it at a price.
Three years on, however, and Twitter is now trading at around US$15.
Snap also revealed that its two co-founders, Evan Spiegel and Bobby Murphy, will "have control over all stockholder decisions", something unusual for a publicly traded company. "The valuation of the stock certainly represents a lot hopefulness".