What's going on?
After much media frenzy, shares of Snap Inc., the parent company of messaging app Snapchat, started trading on Thursday. And its stock jumped more than 40% on its first day of trading. Oh snap! (tweet this)
What does this mean?
Late on Wednesday, Snap shares were issued to a select few investors at $17 per share (valuing Snap Inc. at around $24 billion, the largest US IPO since 2014). On Thursday the shares became available to everyone else to trade via the New York Stock Exchange. Immediately the shares jumped to $24, a 40% gain for the IPO investors, before eventually closing the day at $24.50.
Why should I care?
The bigger picture: Growth is rare in today’s markets.
Large public companies (think: Wal-Mart, Coca Cola, Procter & Gamble) have all faced low revenue growth in recent years due partly to the relatively sluggish global economy. Meanwhile, many fast-growing companies are still private entities that are not listed on a stock exchange, like Uber and Airbnb. Growth is a scarce commodity for most investors right now, which is one reason why publicly traded high-growth companies like Amazon, Facebook and Netflix have seen their stock prices soar in recent years. Snap joins the list of fast-growing companies with publicly available shares – and that generates a lot of interest from growth-starved investors.
For the stock: Who knows what’s gonna happen?!
On the positive side, Snap touts its extremely high user engagement (e.g. users open the app, on average, 18 times per day). It also has a potentially valuable wearables business with its Spectacles product. On the other hand, Snap is far from profitable and faces lurking competition from Instagram and potential future entrants. It will come down to Snap’s ability to grow its number of (engaged) users and how much profit it can ultimately make from them – and only time will tell.