Released to a fanfare in March 2017: the video messaging service, popular for 14-24 years old was touted as the next big thing in tech. Indeed the ‘stories’ video element and the edited emoji and doodles with the edition of a timed expiry on messages seemed to be the popular difference to the standard message apps. The shares had their Initial Public Offering at $17 amid a largely oversubscribed investor demand for the shares: showing abundantly the positive investor appetite for this kind of technology company. Initially they seem to be proved correct as the shares quickly rose to $27, then valuing the company at $30 billion: also bear in mind this company was only created as recently as 2011 and with a then valuation of $30 billion this was the same as telecoms giant Sprint- all the more amazing when the company was still loss making at this point. Unfortunately since then a malaise has as set into the stock: with the shares falling this week to an all-time low of $11.91, importantly below the IPO price of $17- always a crucial level in judging the over pricing of a new technology company: in the process now valuing the company at $16 billion.
Has Snapchat snapped? Certainly the plethora of negative news seem nonstop: only recently a share lock in period, where no shares we allowed to be sold for 150 days after the IPO expired: it would seem with the shares price performance recently investors and other staff have been readily selling their shares. In addition with advertising revenues growing by 286% last quarter, unbelievably this was actually lower than analysts had expected, in the process having negative connotations to the stock and continuing the negative trend . What now seems to have taken place in the industry is a what I would colloquially call ‘two tier tech’: With smaller less established tech companies like Snapchat and Twitter struggle with high cash burn rates to keep up with technological advances: whilst companies like Facebook and Google power on with their dominance who can afford a magnitude of loss making projects without this relatively affecting share price valuation.
Jordan Hiscott, Chief Trader
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