Why Snap Shares Are Continuing to Tumble

Snapchat’s parent company recently saw shares plummet more than 12 percent in its first selloff since it went public last week.

Scott Webb president of Avionos said: “Five years ago, people would’ve never guessed Snap Inc. would be as technologically advanced or widely used as it is today”. The IPO raised $3.4 billion, making it the largest IPO of a USA -listed company since Alibaba (BABA) in September of 2016.

Regardless of the initial excitement surrounding Snap’s stock market debut, investors and market analysts are well-aware that this excitement could fade away very rapidly, if Snap does not show the growth that many would like to predict, and are remaining level-headed. That puts Snap below its first day opening price of $24.

Breitbart News also reported that despite demand for the new IPO shares, the company chose to not raise the price of the offering above $17.

But should this early turbulence give investors pause? By Dec. 2013, Twitter’s stock was priced at $69 per share.

Snap’s addressable market is probably 80% smaller than the dominant social network. At the same time, the company also warned that it might never be profitable. But while Twitter and Facebook completed IPOs at about 20 and 13 times forward revenue, Snap is trading at valuations over 30 times forward revenue after falling by nearly a third. But the company acknowledged its structure was unprecedented in its S-1 filing preceding its IPO. The catalyst to that decline were a bunch of reports from tech analysts warning investors to take a step back and evaluate the company’s true growth potential. The Nomura analyst highlighted a couple fo our chief concerns going into the IPO: slowing user growth and the sky-high valuations.

They’ve got new products in the pipeline, a still-growing user base and an enviable – if fickle – user base of almost 160 million people that are using the platform every single day.

In addition, the company will have a tough task grabbing market share in the digital ad space, which is mainly dominated by Facebook and Alphabet GOOGL aka Google. But user growth slowed in 2014, and it even dipped from the third quarter to the fourth quarter in 2015. Having a say in how the company is run would remain exclusively with the founders and some initial investors.

Still, the stock’s early performance may not be an adequate measure for how it will do in the long run. Most have given Snap a “sell” or “hold” rating. The share price rocketed 44 percent higher when trading began last week. To prevent that dump, shares owned by insiders and majority shareholders are typically restricted for a set amount of time.

“It’s tough to tell”, Mogharabi says, adding that Snap will have to continue to offer innovative features if it wants to stay in business.