Snapchat IPO: Buy, Wait or Pass

Snapchat IPO: Buy, Wait or Pass

You know that app you use to send pictures that disappear after a few seconds... yeah that company closed the week with a market cap of over 30 billion. 

Snapchat went public this past week and soared over 49% on its opening day and finished the trading week with a market cap of over 30 billion. 

When I first heard of Snapchat’s initial public offering (IPO): I knew two things were fairly certain:

  1. That this would be a highly popular IPO
  2. How would the company make money and generate consistent revenue streams and develop new ones

What's good about the brand? 

One of the ways Snapchat has been able to monetize their brand is through the use of geofilters. Specifically when someone is near a place or company that has a paid geofilter - they have the option of adding that into their Snap. For example the new X-men movie used geofilters with people being able to add that to their snaps. People were also able to purchase tickets right through the app -  which can be an e-commerce opportunity. They also have a new feature with stories featuring updates and posts from magazine like Cosmopolitan and features from CNN. It will be interesting to see going forward how this can be expanded into additional revenue. In addition, Snapchat also introduced ads at the end of some Snaps. Although you can skip over it quite easily it still generates revenue.

The bad?

It’s also important to realize that Snapchat’s target audience are millennials: a group that is not the most loyal bunch and has a tendency to not stick in one place. It’s also important to address that Snapchat is in the ever-so competitive and changing tech landscape. Take Twitter for example that was so popular for a while and now has gradually lost market share. Even Google+ which was Google’s way into social media never caught on with the public. Will this be something that is still around come 5 years from now? What about 10 years?

One of the things I admire about Snapchat is how they were able to take something so personal like sharing photographs, videos and food pictures and design an app around it. The idea of seeing a photograph for a few instances and then having it disappear is quite compelling. Snapchat has also become popular with its use of geofilters and its ability to consistently update and maintain this feature creating new ones quite frequently. One of the things that has been hard to track down is Snapchats finances and ways they plan on monetizing the brand. Since Snapchat was a private company for a long time - they are not responsible to disclose their finances to the public - so it will be curious to see what’s up Snapchat’s skirt come the next quarter.

It will be interesting to see how in the coming days and months investors react to the IPO and the subsequent effects on the stock prices. It will also be interesting to see how Snapchat is able to innovate and generate additional revenue streams and maximize performance of existing ones.

Let me know in the comments whether you think this is a good buying opportunity!

Happy Investing!

Data on geofilters and snapchat's products were gathered from:

Market Cap was taken from google finance

Disclaimer: All of the above information is my own personal opinion. I do not hold any positions in the company and do not plan on doing so in the next 72 hours. I am not receiving compensation for this article. Please do your research and consult with a licensed representative before making any financial decision. 

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