Article / 03 March 2017 at 9:34 GMT

What Snap's success says about the current state of the markets

  • Closing at $24.48 – above its IPO and opening price – Snap's debut was a success 
  • Twitter jumped much more on its first day of trading, only to dip heavily later 
  • Facebook's shares initially had a hard time, but later performed very well
  • Markets are in need of investment opportunities
  • Be aware of parallels with earlier crises
Snapchat
Features as lenses have made Snapchat popular among millenials, 
now investors are looking at its parent, Snap. Photo: Shutterstock

By Clemens Bomsdorf

Snap’s shares surged 44% on their first trading day, showing risk appetite prevails. The stock of the parent to the disappearing-image social media service Snapchat opened Thursday in New York at $24 and closed at $24.48, with the daily trades taking place in a range between $23.50 and $26.05 – well above the IPO price of $17.

Snap shares jumped from the IPO price of $17 to $24 at the opening and closed at $24.48 (click to enlarge)
Snap 20170302
Source: Saxo Bank
 
A one-day move like that does not say anything by itself. Twitter, which like Facebook is in competition with Snap for advertising revenue, showed a similarly positive development upon listing and now trades much lower. Conversely, Facebook only just managed to stay at its initial offering price on the first day of trading before diving well below for many months. Today, investors that bought Facebook shares in the IPO are laughing all the way to the bank.

Shares of Facebook (dark blue) and Twitter (light blue) since their IPO (click to enlarge)
TwitterFB
Source: Saxo Bank

The success of Snap's listing – so far, at least – can be interpreted two ways. It could be taken as confirming that risk appetite remains and therefore the markets are in good shape. At the other end of the spectrum, though, it could be investors see no other viable options on the market and so are jumping on anything offering the possibility of a profit.

Trading Floor contributor Juhani Huopainen compares it to the dot-com bubble of the late 1990s.

"Simultaneously, a 1999-like valuation of tech companies, a central bank-driven valuation-frenzy and (still) historically low interest rates," says Huopainen. "But the last year or two of any bull market tend to provide the very best of returns.”  

Snap NYSE
Snapchat just got listed on NYSE, but it rather uses Facebook, LinkedIn and 
Twitter as its social media channels. Photo: Screenshot www.nyse.com
 
Snap raised $3.4 billion with its IPO, placing the company's market capitalisation at $24 billion. The 44% surge in share price means it is now perceived as being worth around $35 billion. But Snap has hurdles to overcome. Despite Thursday's action it is still loss-making and rivals such as Facebook and Instagram are fast in adapting their offerings to mimic Snapchat's. And some investors are not happy about the lack of voting rights for holders of traded shares.

Only time will tell what the future holds for Snap and the markets in general. In the meantime, you might want to read our recent coverage of Snap here (on the first minutes of trading),  here (on what Snapchat is all about) and here (on its valuation compared to Twitter and Facebook).

Saxo Bank's head of equity strategy Peter Garnry also digests whether Snap is worth its valuation.

— Edited by Jack Davies

Clemens Bomsdorf is a consultant editor at Trading Floor.
2y
opportunist opportunist
Are there any possiblities to protect investment in SNAP now after IPO? Imean pus, put spreads or even building synthetic positions on SNAP through options?

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