Snapchat takes big stage with initial public offering
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A few Stanford students majoring in product design saw a void in the social media market. Evan Spiegel and Bobby Murphy created an innovated product, Snapchat, for the sole purpose of creating a way for people to express their imperfect pictures.
Allowing photos that are more about intimacy than popularity like Instagram.
Just recently Snapchat turned itself from a private company to a public one. On March 2, 2017, Snapchat priced its IPO at $17 dollars a share. An I.P.O., initial public offering, is the first time a company issues stock to the public. This is one of the biggest IPO’s in recent years.
Many companies will go public in order to raise money for growth and expand operations with the money from investors in exchange for stock. The price of the IPO price is based on the valuation of the company.
The IPO price the company will use, the amount of shares and percentage of ownership the company will give.
Snapchat IPO was priced at $17 per share to the big investors. This valued the company at $22 billion dollars. Within the next few days after the IPO, Snapchat (SNAP) went up 66 percent to $28 dollars a share and some change. The public was able to buy the stock at $24.
The company was now valued at $33 billion dollars, however the stock plummeted over 10 percent below the initial price of $24 a share that were offered to the normal person.
Many analysts believe that the stock will continue to plummet until it reaches its bottom at the correct valuation people are willing to pay.
Investors also see a problem with the stock that was issued by Snapchat. The Class A stock that was issued does not allow any voting rights for decisions within the company by investors.
This is known for tech companies, but it eliminates the confidence investors have when deciding whether or not to invest.
The stock will lose its strength when handcuffing investor’s hands when taking away voting rights.
Another problem with Snapchat is how it makes money. Although many people may believe that Snapchat makes millions a year based on the fact that 50 percent of 18-34 year olds use the app daily, Snapchat is actually believed to be way overvalued.
“It’s overvalued,” Brian Wieser from Pivotal Research Group said. “That’s the simple answer.”
When Amazon went public they were valued at only $400 million. Facebook was also valued low at only $30 million.
The company’s IPO filing read, “For 2016 we incurred a net loss of $514.6 million, as compared to a net loss of $372.9 million for 2015.”
The company relied on advertisements in order to make money. Over 98 percent of sales were from advertisements.
There is a problem when other social medias are using the majority of advertisements on their sites and taking away from Snapchat.
“Last year 75% of every dollar was going to Facebook or Google,” Shane Smith, CEO of Vice Media, said. “As an independent publisher that makes me shake in my boots.”
There has been a steady decrease in new user growth over the years and finds itself losing to its competition, Facebook.
Facebook tried buying out Snapchat in its early stages for $3 billion, as it feared the new social media.
Facebook is used by 1.2 billion users daily compared to 150 million daily users on Snapchat.
Facebook now has added features that are similar to Snapchat including snap stories. Facebook uses Snapchat as a guinea pig adding what works and doesn’t for Snapchat, Facebook then adds it to its platform.
However, according to “Stock With Teens” poll taken by investment bank piper Jaffray, Snapchat has passed Instagram and Facebook in most important social network.
The future remains unclear for Snapchat and what their end goal will be.
“We are at the tail end of the social media boom. Novelty is giving way to fatigue,” Trip Chowdhry, Director of Equity Research at Global Equities Research, said.
Snapchat also offered Google $400 million for five years to manage its network system. Ironically, this is more than Snapchat makes in its advertisements.
What does this mean for the users of Snapchat? Well, there could eventually be a dramatic change to the company’s structure that could impact the app itself.
There could possibly be more advertisements or even another element to the app that would allow the company to make money off of the users.
There will be elements that are needed by Snapchat that can increase the growth and keep users interested as they try to climb the ranks of all the social media platforms.
Adam Demoulas is a copy editor for The Dakota Student. He can be reached at firstname.lastname@example.org