SNAP’s Sentiment-Fueled Roller Coaster

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When Inc (SNAP), the company behind the massively popular app , announced an IPO, there was massive investor interest. Most of the widely regarded social media industry leaders had gone public up to that point, with the last social media IPO being Twitter in 2013, and Snapchat was (and is) rising as a possible industry disruptor. Undeniably, to potential IPO takers, Snapchat represented a new form of social media with untapped potential, which would explain the heavy demand and consequent fulfillment of Snapchat’s IPO targets. It presented an exciting opportunity for growth.

Still, it was clear that an investment in SNAP was not such a no-brainer as some may have thought it to be. While investors could point to LinkedIn and Facebook as social media stocks with very consistent long-term growth, Twitter remains an example that potential is not always reached. Especially when the shares being sold are “Class A”, which means shareholders have no say in company decisions: the two co-founders still have 89% of voting power, giving them full decisionmaking power. Thus, the question is: do investors trust Evan Spiegel and Bobby Murphy, the two Snap Inc co-founders?

Snap Inc IPO shares were sold at $17.00, and there were 200 million shares for the taking. However, according to reports, investors were willing to pay even more for these initial shares, something along the lines of $20-$24 per share, but the underwriters of the IPO only sold the shares one dollar above the initial target price of $15-$16, instead of $20-$24. This means SNAP lost out big on much potential cash flow, even if their shares were bound to rise upon launch.

And upon launch, the shares did rise. On March 2nd, 2017, riding on a wave of investors who all wanted in on SNAP at what they thought was a low price, the price rose from the initial $17 to $27.09 at its peak. In the week following, many people began to saw issue with their investment. Snap’s value was based more on its uncertain future rather than what it currently has, and investors saw the stock as clearly overvalued. Thus, in that week, the stock price crashed, and eventually settled at below $20 for a bit.

But like all good things, the price began to regulate itself. Firms began to initiate higher ratings on SNAP with such a low price as $19, and especially because $19 is still higher than the IPO price. Sell ratings turned to Neutral ratings, and Neutral ratings turned to Buy ratings. Investors, affirmed by these ratings, sensed a change in market sentiment, and started buying SNAP once again, propping the price into the $22-$23 range. On today, March 23rd, 2017, the price sits at $23.13. This is the highest it has been since its initial crash. What is crazy about all of this is that SNAP has taken no major actions this whole month, and all shifts in price have been solely due to investor speculation. If anything, SNAP’s largest move this month was one of its executives taking jabs at a Facebook executive on Twitter about Facebook copying features from Snapchat.

If anything has moved Snapchat this month, well, Snapchat themselves have little to do with it. Snapchat remains a stock to watch closely in the months to follow, and especially during their first earnings report, which could very well determine the direction this company will follow for years to come. Pressure’s on.

Read More Here:

http://www.nasdaq.com/markets/ipos/company/snap-inc-899497-82723

http://www.investors.com/news/technology/snap-passes-twitter-among-advertisers-receives-buy-rating/

https://blog.hootsuite.com/snapchat-demographics/

http://fortune.com/2017/03/21/snapchat-snap-ipo-wall-street/

About the author

Harry Kuperstein is 17 years old, hails from Southborough, MA and is a VI Former at St. Mark's School. He will be attending Johns Hopkins University as a member of the Class of 2021, majoring in Neuroscience. He is a captain of the school's boys JV soccer team and robotics team. He is interested in investment strategies, and all things science and writing. Unsure of the future, but motivated and driven, he aims for nothing but success, whatever “success” means.

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