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Tulip mania/south sea bubble – Snap IPO

By David Scott | Friday 3 March 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Snap, the parent company of Snapchat Inc, floated yesterday on the New York Stock Exchange giving the company a closing valuation of just over $28 billion, after the shares surged 44% from the IPO price. It will also made its two founders, Evan Spiegel and Bobby Murphy, worth more than $5 billion each. The stock closed at $24.48, giving the company a market value of $28.3 billion. At one point it reached $26.05 and a market value of $29.1 billion. The company raised $3.4 billion at $17 a share after pricing its initial public offering making it the biggest tech float since 2014, when Alibaba shattered all records. It is almost three times the size of Twitter, bigger than both HP and CBS, and almost as big as EBay.
 
Snapchat started life as Picaboo, a “sexting” app that allowed people to send photos that would disappear after a set time limit and developed by Murphy, Spiegel and now estranged partner Reggie Brown. By 2011, Snapchat had morphed into a sort of anti-Facebook. Instead of a world of “likes” and a history of posts, Snapchat sought to develop a platform for spontaneous communication that would instantly evaporate. Brown fell out with Spiegel and Murphy after overhearing them talking about ousting him from the company. He sued and settled for a reported $157 million.


 
Snap is a favourite of teenagers and millennials, but its public filings shows that the company is heavily lossmaking. In the run-up to the IPO, it has had to convince potential investors that it is not like Twitter, which also floated amid massive optimism but has struggled since then. Twitter Inc surged 93% when it first opened on the New York Stock Exchange in 2013, but are now trading at $15.84, down nearly 40% from its $26 IPO price and nearly 70 percent from its opening price of $50.09.

Facebook shares are currently 259% higher than on their first day of trading. Despite a nearly seven-fold increase in revenue, the Los Angeles-based company's net loss widened 38% last year and it faces intense competition from larger rivals such as Facebook's Instagram as it grapples with decelerating user growth.  In 2013 Speigel, 26, and Murphy, 28, turned down a $3 billion offer for the company from Facebook’s Mark Zuckerberg. At the time the company had six employees. Now each of them holds a paper fortune worth in excess of Zuckerberg’s offer. After failing to buy the company Facebooks Instagram has launched a copy cart offering called stories, which is reportedly  doing very well,
 
Investors bought the shares despite them having no voting power, an unprecedented feature for an IPO at odds with rising concerns about corporate governance over the past few years from fund managers looking to gain influence over executives.  Snap is going public at a much earlier stage in its development than Twitter or Facebook, the five-year-old company is valuing itself at nearly 60 times revenue, more than double the 27 times revenue Facebook fetched in its IPO. Normal company trade on about two times,

The Company reported revenue of $404.5 million in 2016 and a loss of $514.6 million for 2016, compared with revenue of $57.7 million and a loss of $372.9 million a year earlier. Snap said it had 158 million daily active users on average in the quarter ended in December, a 48% increase from the same quarter a year before. It has more than 158 million users worldwide but user growth has been slowing. It reported a rise of just over 3% in the final quarter of last year when it had been in double figures earlier in 2017.


 
Search the internet for any profile of Evan Spiegel, and you will come up short. At 26 - an age that makes him the first self-made billionaire born in the 1990s - the founder of Snapchat is supposed to represent a generation that grew up with the internet and is supremely comfortable about sharing their lives online.

But Spiegel has eschewed the public profile of many of his peers. His Twitter account, set up in 2010, is empty, he has no open Facebook page, and interviews are exceedingly infrequent. He even keeps a low profile on Snapchat itself, despite it being a microphone for more than 150 million daily users including many of the world’s most glamorous celebrities, among them Spiegel’s fiancée, the supermodel Miranda Kerr.



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