The most widely anticipated Tech IPO of the year, Snap Inc. (aka Snapchat™) made its debut last Thursday as the first in what was touted as the – and I do mean the – resurrection and return of the all but barren IPO dreams-to-riches, fairytale cash-out.
The virtual, as well as literal champagne was flowing widely as everything tech (aka “The Valley”) seemed to release its collective breath as the prices for SNAP rose ever the higher. All that seemed missing was the proverbial “Mission Accomplished” banner.
That was Thursday, but by Monday – Snapchat’s core product for augmenting the reality of photos met the cold reality of “Business 101” and all those touted profits (e.g. up 44% from its IPO price) began vanishing much like those augmented photos are claimed to do. i.e., “Poof” Now you investment dollars match the company’s product.
As of this writing: If you invested $1 in Snapchat as a public company when it opened on the NYSE™ (remember it opened to retail customers at $24 per share with great fanfare!) you have lost approximately 10% if not more, maybe, much more.
And If you were one of those who purchased after the open? Say like late Thursday or Friday? All I’ll say is, “You have my condolences.”
But there’s another problem which could have even worse connotations. That problem? The “markets” have only been open for about an hour or so – and it’s only Tuesday.
That “Up 44% from its IPO price” reporting that was the heralded “sign for IPO relief” has already been more than halved. And by all appearances – may be halved again by the end of day, if the shares perform anything close to what they’ve done so far this morning. Let’s just say this “decacorn” (because “The Valley” believes you’re only a player if you’re worth $Billions in multiples of 10) came prancing out of the IPO stables – was paraded around for all to see – then was marched directly into the unicorn glue factory. Whether it ever emerges again is anyones guess, although I wouldn’t count on it, and here’s why:
Everything about this IPO (and company) seemed contrived right from the start, from its declaration of “We’re not a photo app – we’re a camera company” , its selling of non-voting shares, right down to the bizarre of including the word “poop” in their filing.
Yet, as odd as all that appears (and yes, it’s quite) what raised my eyebrows further than any augmenting software could was a report given by Charles “Charlie” Gasparino of Fox Business Network™ before the IPO open when he stated (paraphrasing) “A little less than 2% of shares were all that were being offered at the IPO launch rather than the customary 5% which helps to create the illusion of a greater demand than there might actually be.” (He explained it later in even further detail here.)
Said differently: There was only about 30% (give-or-take) offered for sale of what is usually the norm. e.g., About 70% less available for the average retail investor, creating the illusion, of value through scarcity.
I’m sorry – I thought everyone couldn’t wait to plow into this thing? I can understand trying to build some form of hype around this IPO. Nobody would fault them for that. But the more you find out about this company along with its business plan, and IPO? The more troubling the revelations become although as of just this weekend – you would be hard-pressed to find anything but glowing praise. To wit:
“Sure, the economics are ugly on the IPO, as so many people have detailed. Sure, it lost half a billion dollars last year, and warns it may never make a profit. Sure, it’s future is dependent on innovations to keep teens hooked– innovations it can’t even predict right now– and TV advertising money finally flowing online. Sure, it’s being compared to Facebook, despite an early attempt to spin itself as the Facebook alternative, and that’s never an easy comp. Snap’s IPO price is 55x revenue– more than double Facebook, and Facebook had a profit of $1 billion at the time.
But credit to Snap: It actually made it out at a price that seems to have justified it’s nosebleed private capital valuation.”
And now with its coffers overflowing from such a succesful launch, I guess there’s only one thing left to concider in everything that is “The Valley.”
If your mind went in a Business 101 line of thought, and thought “grow the core business, and become a profitable company?” Sorry, as I’ve been told so many times prior – “You just don’t get it!” To wit:
Via Tech Crunch™:
“Should Snap Buy Twitter?
Now that Snap is flush with public dollars, the question becomes: How to spend it?
One suggestion floated as a “what if” scenario among armchair executives in banking, finance and tech over the weekend is that Snap could make a bid for Twitter.”
Yes, only days after the IPO of company whose now infamous claim that it loses more money the more users it attracts, and states it may never be profitable. Its next item on the “to do” list should be to spend more and buy the only company everyone fears to death Snapchat’s stock shares might follow.
Only in “The Valley” can this line of thinking exist. No wonder fairytale symbology such as “unicorn” fit so well, is all I’ll say.
The only good thing I take away from all this is that maybe offering so little shares (remember 70% less the norm) at the IPO for the retail public might be a godsend for all those remaining, or shut out millennials who just couldn’t wait to hop into what was surely curated into their news feed as the “next big thing.” Again, to wit:
“Who bought Snap stock? Snapchat’s young users snap up stock — and want more IPOs”
I’m of the mindset – those few that were able to “snap” up those shares have done everything in their power (as being witnessed in current trading) to dump them as quickly as they acquired them. The only issue?
Their cash value has disappeared far more permanently (and quickly) than their photos ever did.
And it’s only Tuesday.
© 2017 Mark St.Cyr