What to Do After Snap Inc. [NYSE:SNAP] Blasts 44% Higher in IPO’s First Day of Trading…

Snapchat IPO

What is the Snapchat IPO?

Shares of Snap Inc. [NYSE:SNAP] blasted higher overnight by 44%, in what was the US market’s first initial public offering (IPO). The shares closed at US$24.48, following their listing at the IPO price of US$17.

Why did Snap shares rocket higher?

Snap Inc. operates the SnapChat app, which allows users to communicate and exchange photos with each other.

The attraction of the SnapChat app is that photos sent between users disappear within seconds of being received.

Due to its ease of use, it has become popular mostly among the demographic broadly labelled as millennials. For many in this demographic, it has usurped other social media websites and applications, such as Facebook and Instagram.

One of the gimmicks SnapChat has is that users can maintain a ‘streak’. This involves keeping in contact with someone at least once each day for a continuous number of days — hence a streak.

Therefore, in the desire to maintain a ‘streak’, it encourages users to remain engaged with the app and their contacts. That’s a unique feature of the app which you don’t find with other social media platforms such as Facebook or Instagram.

The popularity of the ‘streak’ function means that people will even ask friends to use their account for them if they’re unavailable in order to maintain their active streaks!

What now for Snapchat?

The challenge for SnapChat is how to successfully and sustainably maintain and grow revenues and profits. For the 2016 financial year, SnapChat Inc. recorded revenues of US$404.5 million, with a loss of US$514.6 million.

Both were an increase on the 2015 numbers, which came in at US$58.7 million and a loss of US$372.9 million respectively.

Other social media platforms have managed to monetise their user base. Facebook Inc. [NASDAQ:FB] has been the most successful — even though, in the early stages of its growth, it assured users that advertising revenues weren’t a priority.

But not all have succeeded. Twitter Inc. [NASDAQ:TWTR] saw rapid revenue growth, but its numbers have plateaued over the past two years, and the company has still failed to make a profit.

So, which will it be for SnapChat? Profit or loss? SnapChat certainly has the user base. The question is whether it can successfully turn that into big revenue growth and profits. At the moment, we remain unconvinced that’s possible.

By Kris Sayce

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Kris Sayce

Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.

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