The company behind the popular visual-messaging app Snapchat saw its shares spike on the first day of trading today, after an initial public offering that itself earned more than anticipated.
Snap Inc. began its life as a public company on Thursday, a day after it priced its initial public offering of 200 million shares at $17 US each. That was above the expected range of $14 to $16, which valued the Los Angeles-based company at $24 billion US.
Wednesday's IPO pricing was the first chance for early investors in the company, founded in 2011, to cash out on their investment. But Thursday on the NYSE was retail investors' first chance to take a bite.
And bite they did, with the shares rising as high as $25.42 US, or 49.5 per cent, in late-morning trading on the New York Stock Exchange. Snap Inc. shares closed at $24.48 on Thursday, up 44 per cent.
Snap's IPO was one of the most anticipated for a technology company since Twitter's stock market debut in 2013. Co-founders Evan Spiegel and Robert Murphy will retain control over all matters at Snap: the Class A stock being sold in the IPO has no voting rights. Snap got the ticker symbol "SNAP" on the NYSE.
For Snap, which started its official bid to go public last Halloween, the looming question is whether investors are in for a trick or a treat.
Snap's Snapchat app is best known for disappearing messages and quirky facial filters for jazzing up selfies. It's popular with teenagers and younger millennials. While Facebook launched in the era of desktop computers and Twitter in text-based mobile, Snapchat jumped straight to photos and videos — the most popular avenue for advertisers.
"Young people who are of the most interest to advertisers spend a lot of time on social media," said Duncan Stewart, director of research for technology, media and telecommunications for Deloitte.
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"They are so used to consuming things like Netflix and over-the-top services [and with] ad blockers on their computers and on their smartphones, that they are seeing fewer and fewer traditional ads," he said in an interview with CBC News.
"The one place that young people still see ads, and seem to tolerate it, is in their social media feeds, so at a really high level, the reason people are so obsessed with social media and advertising, is it's one of the forms of advertising that young people are having a lot of trouble avoiding."
'The one place that young people still see ads, and seem to tolerate it, is in their social media feeds.' - Duncan Stewart, analyst
Video ads for Snap's younger user base could be Snapchat's competitive advantage over Facebook, Twitter and others. But that growth has slowed in recent months
Part of that is because the 800-pound gorilla that is Facebook is fighting back. Facebook-owned Instagram mimicked Snapchat's "stories" feature last August, and Snapchat's growth has been slowing ever since.
With the feature, photos and videos shared by users play in a loop for 24 hours, then disappear. The feature helped Snapchat recover from stagnant growth before, but now it's no longer unique to Snapchat. After adding 36 million daily active users during the first half of last year, Snapchat picked up just 15 million in the second half.
The number of people downloading Instagram's app has been accelerating during the past six months, suggesting a gradual shift away from the Snapchat app, based on an analysis financial advice site ValuePenguin did of activity in Apple's app store.
A soaring stock price on the IPO day looks good for Snap, but that doesn't mean its troubles are over.
"What that number means for the longer term — very little," said Chi-Hua Chien, managing partner at Goodwater Capital who originated the venture capital firm Accel Partners' investment in Facebook and later invested in Twitter while at another firm.
Twitter, for example, shot up nearly 73 per cent on its first trading day and now trades well below its IPO price. Facebook, meanwhile, saw its stock decline sharply for a few months after going public. Now, it's trading at more than three times its IPO price, near a record high.
Camera company too
Since Snapchat was never about typing, the phone's camera is already its main focus. In fact, chief executive Evan Spiegel has taken to calling it a "camera company," and this is how the company describes itself in its IPO documents.
That doesn't necessarily just mean that Snap wants to make cameras, though last year it launched Spectacles, actual physical sunglasses that snap photos for you.
Snapchat is more about image-based communication, said Chien of Goodwater Capital.
Open the app, and you open a camera. Turn the camera to selfie mode, and you get a bunch of filters to overlay on your face. Because the images you send eventually disappear, there's less pressure to put forward your best self.
Snapchat has often drawn comparisons to both Twitter, which also faces stagnant growth, and Facebook, whose users are highly engaged, just like Snapchat's. Ultimately, Snap doesn't have to be like either to succeed and can forge its own path and identity.
LaVon Murphy, 45, a photographer in Portland, Ore., uses Facebook to keep up with friends, Instagram to express herself through pictures and Twitter to keep up with the news. She added Snapchat recently to stay in touch with her 17-year-old son.
"I don't really understand why he and his friends use the app so extensively, but I am trying to keep up," she said. "It allows me to be silly and show a silly side of myself to my son and it allows him to be silly with me."
Snap just needs millions more like Murphy willing to make time for yet another social network.