Is Snapchat set for glory on Wall Street?

Dr Sonia Falconieri said:

“In the past few years, the discussion on these ‘hot’ tech IPOs revolved around whether the impressive valuations investment banks had come up with made sense, given the company’s fundamentals (or the lack of any, for that matter).

"Snapchat is adding another layer to the discussion in that prospective shareholders won’t have a say on the company’s decisions.
“The company is asking prospective investors to have an awful lot of faith in their ability to grow and eventually become profitable. Based on the experience of some of their most famous predecessors there aren’t many reasons to be optimistic.

Everyone wants a piece of Snapchat. Ultimately the success of the IPO will depend on whether institutional investors are buying into the company’s valuation and future strategy enough to forget about the fact they won’t be able to steer the wheel.

"In fact, with the exception of Facebook, (even for them, it took a long time before the share price raised above their IPO offering price), companies like Twitter or Groupon are trading substantially below their IPO offering price.

"Snapchat operates in a relatively niche market: competition is fierce – the almost replica Instagram Stories had an immediate effect on their customer base and saw a sharp drop in numbers.  

While institutional investors are reasonably concerned, the retail market is growing increasingly excited, as is always the case for these high profile tech IPOs.

"Everyone wants a piece of Snapchat, so ultimately the success of the IPO will depend on whether institutional investors are buying into the company’s valuation and future strategy enough to forget about the fact they won’t be able to steer the wheel if (or when perhaps) things happen to go wrong.”

Dr Sonia Falconieri is a Reader in Finance at Cass Business School.