Camera company Snap Inc (NASDAQ:SNAP) drove the market into a frenzy with its initial public offering (IPO) on 2 March, which was the biggest since Alibaba (BABA) went public on the New York Stock Exchange back in 2014. Snapchat, which is famous for its disappearing message app, sold over 200 million shares in its IPO raising $3.4 billion- and gave the green light to other tech companies considering a public offering.
But perhaps the real story is that SNAP stock in is now up by more than 50% giving the company a market cap of over $30 billion. As a comparison, this already surpasses the market cap of established companies like American Airline (AAL), Twitter (TWTR) and Hersheys (HSY) although it is nowhere close to Facebook’s (FB)massive $397.6 billion market cap.
Analysts are now wary that the rally has gone too far too fast. Shares are currently trading at $27.09 versus the average analyst price target on TipRanks of $15.5 (-42% downside) .Five-star Pivotal Research analyst Brian Wieser points out that Snapchat faces “aggressive competition” from companies like Facebook, Whatsapp and Instagram, while noting that management is inexperienced at running a successful public company as opposed to just a successful new product.
It’s true that the company has a long way to go: Snapchat posted a net loss of $514.6 million in 2016 and warned that it ‘may never achieve or maintain profitable’, according to the filed IPO prospectus. However, investors have nonetheless proved very keen to buy Snapchat shares right now. Here are three reasons why these investors may well be right:
Snapchat does have competition. And some of the competition is very similar. Whatsapp, for example, has recently introduced 24 hour statuses and the ability to add emojis, text and drawings onto photos. However, Snapchat still feels different to these other offerings. First of all, SNAP’s data policies appear less dubious than its competitors; content completely disappears after 24 hours- even from Snapchat’s own servers. Users can also choose to save photos in a special section only accessible by a pin code.
