A LOOK AT SNAPCHAT’S IPO: WHAT IS THE WAY FORWARD?

The first week of March has been characterized by some interesting activity in the American stock market. This week the popular photo-sharing app, Snapchat’s parent company, Snap, went public. Though there was no surety how the market would respond to this IPO (initial public offering), it has been an interesting week for Snap. Last week Thursday Snap entered the New York Stock Exchange with a bang, valuated at 41% above its issue price of $17 a share at $24 per share. This would give Snap a market capitalization of roughly 20 billion dollars. In fact, it is rumored that other applications such as Uber, Airbnb, and China’s Xiaomi might follow their lead. So, what are the facts behind this huge IPO? What is going on in Ghostface’s (the name of the Snapchat icon) house? Let’s dig a little deeper.

Snapchat is an app probably most popular for its strange and creative filters including voice changing and face-swapping technology. Last year it reported having 158 million daily active users creating and sending on average 2.5 billion “snaps” in its integrated network daily. But, prior to its IPO, how did Snapchat fund itself? Actually, 98% of its funding was being made by paid advertising as of last year. So, though Snapchat was experiencing growing revenues, it was equally experiencing growing losses as well. Since such a high portion of Snapchat’s funding is reliant on paid advertising, it is paramount that the app is able to facilitate growth in daily active users as this will attract more advertisers (more traffic means more advertising which means more money). This notwithstanding, Snapchat also has the issue of customer “brand loyalty” because the majority of its customers are teens and this is a demographic that could easily switch over to a different platform. All of these challenges, the company faces added pressure as competition such as Instagram creates snap-like features (“Instagram Stories”) to boot them out.

Hence, with these factors in mind and the need to increase gross profit margin, Snap could be diversifying into other products on the market as well. Already, the company has unleashed a pair of goggles: the Snapchat video-camera glasses that record 10-second clips or “snaps” with the tap of a button and then allow you to post them on the snapchat app.

Whatever, be the case, it seems the market has a positive feeling about Snap and it will be interesting to see what the future of the company will be. Will Snapchat be able to grow its fan base to the size of Facebook’s? Will it be able to move past the hurdle that a similar social media company, Twitter, has reached after its IPO? Can Snap’s fortunes turn around and the company truly be profitable despite claims that they do not expect profitability? These are all things that could be interesting to find out in the near future.