Shares of Snapchat parent Snap Inc. jumped more than 45% in its IPO market debut Thursday, showing investors have an unfailing appetite for buzzy if unprofitable Internet firms — especially after a dry spell.
After pricing at $17 a share, above an earlier range of $14-16 a share, SNAP shares opened on the New York Stock Exchange at $24 a share.
The Venice, Calif. company started its flagship messaging app in 2011 and quickly became a sensation with teens and young adults. Wednesday's offering of 200 million shares valued the company at $23.6 billion — about the size of Google when it made its public debut, but far smaller than Facebook in 2012.
Still, it comes after a dearth of tech IPOs and IPOs in general, as venture-capital-flush startups see little reason to enter the public markets and all the public scrutiny that entails.
The $3.4 billion sale is the biggest U.S. tech IPO since Alibaba raised $25 billion in 2014, according to Dealogic.
There are plenty of cautionary signs.
The IPO is unusual in that investors aren't granted voting rights for the shares on offer. Instead, co-founders Evan Spiegel and Bobby Murphy own the bulk of shares with such power.
Snap isn't making money, even though it's a huge hit with mobile users, averaging nearly 160 million visitors monthly and nearly 10 billion video views daily. The company lost $514.6 million on sales of $404 million in 2016, and user growth has slowed. Investors can't tell if it's another Facebook, on the way to giant user growth, sales and profits, or the next Twitter, whose tepid user growth has disenchanted advertisers and kept it in the red.
Among the optimists, Doug Clinton, an analyst with Minneapolis-based Loup Ventures, thinks Snap could grow revenues 100% to $800 million in 2017 and says Snap is smart to position itself as a "camera" company.
"By trying to own, or at least influence, the camera layer itself, Snap evolves beyond a social media app into an enabler of communications. In that sense, Snap’s focus on the camera is not all that dissimilar from Facebook with its experiments with VR and AR. The difference is Snap appears to be all in."
Clinton says the camera is the centerpiece of communication now, "and if Snap can find a way to own the camera they will be rewarded handsomely."
Eric Kim, managing partner at Silicon Valley venture fund Goodwater Capital, thinks that even at $17 a share, Snap could prove profitable for growth investors.
"Investors are clearly saying that they are expecting Snap to be the next digital media giant," he wrote in a note to investors. "This is certainly not a short-term bet by IPO investors, but a long-term view that Snap (which even at $17 a share is 1/16th the size of Facebook's market cap) can be a long term winner."
However, Erik Benson, managing director of Voyager Capital in Seattle, isn't buying. He notes Snap is going public at a 40% to 50% premium to Facebook's IPO, which was making $1 billion in profit at the time.
"With my public stock investor hat on, I’d much rather own Twitter, which is trading at a steep discount to Facebook (less than 4x enterprise value to revenue). If SNAP does have a successful IPO, I’m moving all of my investments to cash as it will be the leading indicator of market peak.”