Is Snapchat Defying the Dot Com Model with $28bn Valuation?

Is Snapchat Defying the Dot Com Model with $28bn Valuation?

Many were sceptical of Snap – parent company of popular youth market-focussed Snapchat – as it started its first day of trading on the New York Stock Exchange yesterday.

What were the criticisms? Well, the usual analyst spiel: 26-year-old CEO, tech start-up, zero voting rights for investors and something about the bursting of the bubble.

Analysts, pundits and, well, old people have had a difficult time recently coming to terms with the social platform, particularly given the increasing popularity of Instagram, which many believe to be stealing Snapchat’s thunder, and its audience.

That said, the 6-year-old company had a better-than-expected first day, bursting its public trading bubble with an increase in shares of over 40 per cent. Not bad, we think.

Co-founder Evan Spiegel, who earned $272m (£220m) on the offering is now worth around $4.5bn. And with rapid growth and a daily usage count of 161m, Snapchat seems to be going from strength to strength.

All that from 3 second user-generated videos of cats?

But wait a second. There’s more to this story. Sure, Snap seem to be doing well, but if you’ve been following the company’s history, you’ll know that despite the growth, they’ve yet to be profitable

According to Prof John Colley of Warwick Business School, “There is far more cash than opportunities [in the market], which means pursuit of long odds and risky options such as Snapchat. Investors cannot even be certain what they are really investing in as they do not get voting rights.” 

And that’s backed up by the fact that as the morning bell rang on its first day of trading, Snap’s IPO was around 10 times oversubscribed…

There we have it. At least for now, investors appear to be bullish for Snap’s stock, but let’s review their position in a month and see what’s happening. For now, at least, Snap proves there’s hope for tech start-ups yet.