Issue of the week: Snap judgement
Does the float of the company behind the “disappearing app” mark the high point of the latest tech boom?
It was “the biggest technology float for years”, and it didn’t disappoint, said James Titcomb in The Daily Telegraph. Snapchat’s parent company, Snap Inc, was valued at nearly $30bn last week as investors “set aside fears” about the firm’s heavy losses to send shares soaring by 44%. Snap’s big debut shows that Wall Street’s appetite for money-burning tech companies remains undiminished. It has also made a very rich man of the company’s 26-year-old CEO, Evan Spiegel, who co-founded the photo-messaging app just six years ago, and is now worth around $5bn. This float will hearten other leaders of the app economy who are “among potential IPO candidates in coming months”.
The worry is that Snap’s new investors may be as fleeting as the messages that users share on the app, said Reuters Breakingviews. Shares tumbled 11% on Tuesday as short sellers, betting that a big price fall is on the cards, “moved in”. The immediate share gyrations are “next to meaningless”, said Lex in the FT. Facebook was also “oversubscribed” when it floated in 2012, and then went on to lose half its value in its first weeks of trading. But shares have since risen by more than 600%. Twitter, by contrast, now languishes 40% below its offer price. Which is Snap? “It’s impossible to say at this stage.” But for “every portfolio manager who sits on his hands, slack-jawed at the ludicrous multiple, there are more who will opt in” – the risk of “missing out” on a potential bonanza is too great. With US stock markets at all-time highs, Snap’s timing was perfect. “Cautious investors can tut-tut all they like. For now, the only reckless behaviour would be if the other dubious yet highly priced tech unicorns” – companies such as Wework, Palantir and Dropbox – “are not typing up their own prospectuses”.
“Snapchat has two defining features,” said Farhad Manjoo in The New York Times: “pictures and ephemerality”. The latter is particularly prized by Spiegel, who describes the way that rivals such as Facebook collect users’ details, and follow them around the internet, as “creepy”. But the focus on pictures is important too. A bet on Snap is a bet on the “cultural supremacy of the camera” in the years ahead: Snap wants “to make it at least as important to our daily lives as the keyboard”. Companies from Youtube and Instagram to Flickr have majored on pictures, but Snapchat showed that we could use them not only to document the world, but also to communicate. Plenty of other companies are “nibbling” at this “megatrend”, but “no company is enabling and benefiting from the rise of visual communication as thoroughly as Snap”. In a world where image is getting to be “everything”, it’s “not a bad bet”.