Tech Capital

Snap Inc: Do Facebook and Google provide a market road map for the beleaguered messaging giant?

The message app company's shares fell back to US$17 - the IPO price - but will things improve?
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Going a little gaga - short-sellers have hit the stock hard

Snapchat owner Snap Inc (NYSE:SNAP) closed at its IPO price Thursday with a large spoonful of schadenfreude being served up by the sections of Wall Street and Silicon Valley sceptical about the long-term viability of the popular messaging services.

But it was ever thus for tech new issues. Shares in Google, now Alphabet (NASDAQ:GOOGL), and more recently Facebook (NASDAQ:FB) struggled to find their feet early on – both fell below their respective IPO prices.

Now look at them: stock in Alphabet, listed in 2004 at US$85, is currently changing hands for US$960 (valuing the business at US$652bn), while Facebook has delivered a three-fold return since its float in 2012.

READ: Short sqeeze hits message app maker

Taking the long-term view of online shopping would have paid off handsomely for holders of Amazon, which was the pathfinder for our titans of tech 20 years ago. One hundred dollars invested back then is now worth US$64,000.

So if you didn’t get in at IPO, is now the time to pick up stock in Snap?

Well it is fair to say that past performance – particular the past performance of shares in other companies – is no guide to how the future will pan out for Snapchat or its creator and the company's chief executive, Evan Spiegal and his chums.

Ultimately, he (and the business) will be judged on fundamentals  – or more precisely the ability to monetise the Snapchat app at a rate which supports the current valuation.

READ: Snap Inc disappoints the Street

There was of course a messy first-quarter revenue miss, which undermined confidence in the story.

Pressure has reportedly been applied on the stock by short sellers fuelled by rumors of a sharp fall in Snapchat’s active user base, while the market has also been anticipating the expiry of lock-up agreements on stock.   

However there are those who are prepared to take the longer view. Popular financial blogger Alex Cho thinks it is too early in the company’s monetization cycle to be making Snap decisions on the future of the business.

He points out that growth is never straight-line and Snap’s revenues will, as an inevitable consequence be lumpy.

WATCH: Alex Cho's gives his insight on Snap Inc

“When compared to other large-cap peers, we generally believe the heightened bearishness isn't well warranted despite some negative data point pertaining to short interest/download data,” says Cho.

“Of course, we can acknowledge that it will take time for Snap Inc's daily active user figures to inflect meaningfully higher, but upon doing so, the stock will likely reverse course and move higher on substantial volume.”

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