Snap's stock market debut paid off big time for its young co-founders, but concerns over its future prospects still loom.
Snap Inc. saw its shares surge beyond their IPO price by 40 percent during its debut on the New York Stock Exchange on Thursday.
Armed with the SNAP ticker, the company behind the popular visual messaging app known as Snapchat began trading at $24 per share, valuing the firm at $33 billion. As a result, Snap’s youthful co-founders CEO Evan Spiegel (26) and CTO Bobby Murphy (28) are now worth $5.3 billion each, reports Bloomberg.
The leap in Snap’s share price reflects the high demand from investors for the first United States tech listing of the year. An undoubtedly buzzing property, Snapchat boasts 158 million users, 85 percent of which are between the ages of 18-34, according to its own data.
In the lead-up to its expected IPO, the company stepped up its app updates, releasing over a dozen new features in 2016, including group chat, video calls, and “world lenses” (graphics that can be overlaid upon snaps taken from a smartphone’s rear-facing camera). It also made its $130 video-recording sunglasses, dubbed Spectacles, available to purchase online. Additionally, it has been beefing up video content in its Discovery section, striking high-profile deals with broadcasters such as NBC, Disney, and Turner in an effort to position its platform as an entertainment hub.
But, despite all the hype generated by its stock market debut, some analysts still aren’t convinced the company will become a social media powerhouse in the vein of Facebook. The problem is at present Snapchat is not generating a profit. Last year the company made a loss of $515 million, and the year before that it was $373 million.
“They would need to grow for the next 10 years at more than 50 percent every year with a profit margin of 25 percent, which is extremely high given that they are now losing money rapidly,” Brian Hamilton, co-founder of financial analysis firm Sageworks, told The New York Times.
Snapchat is also struggling to gain users outside of the U.S. and Europe, as reflected in the figures published in its IPO S-1 filing — which marked the first time the public got a glimpse into the workings of the secretive company. Whereas the app’s daily user base in North America jumped 40 percent over the previous year to reach 68 million members as of December 31, its numbers for the rest of the world remained flat from the previous quarter, totaling 39 million.
Spiegel claims the app can still compete with its bigger rivals. In his sole interview on trading day, the CEO told the LA Times his company could become as valuable as Facebook by building a smaller, more personal service. Comparably, Facebook debuted on the stock market in 2012 at $38 per share, with a record-breaking valuation of $104 billion. The tech giant now boasts 1.86 billion users and has a current market cap of $395 billion.
Despite Snap setting its sights on the biggest player in its sector, analysts claim another social platform may be a better comparison, although it’s probably not a welcome one. Twitter saw its shares rise a stunning 73 percent on its first day of trading, valuing the company at $24 billion. Since then, however, it has seen its stock tumble as it struggled to gain users. With 319 million members at last count, it is now valued at $11 billion.
In its favor, Snap claims its app’s users skew young, are highly engaged, and a lucrative demographic for advertisers. In 2016, it generated the majority of its $404.5 million revenue from advertising, an impressive feat for an app that lacked an ad strategy two years prior.