Wall Street investors snap up shares of mobile phone messaging app Snapchat making it worth tens of billions even though it's never turned a profit.
Wall Street minted two new big-league billionaires on Thursday with the snappy stock market debut of Snapchat, the latest super trendy technology company.
They are 26-year-old Evan Spiegel and 28-year-old Bobby Murphy – the co-founders of the mobile phone messaging app beloved by teenagers and 20-somethings. Their net worth is now $5.3 billion (5.02 billion euros) each.
The shares jumped in price by 44 percent on their first day of trading on the New York Stock Exchange, giving it a market valuation of over $28 billion (26.5 billion euros), even though it has never made a profit.
Just 40 months ago
Snapchat</a> rejected a $3 billion acquisition offer from <a href="https://twitter.com/facebook">Facebook, today $SNAP had their IPO and is now worth $30 billion.
— Jonah Lupton (@JonahLupton) March 2, 2017
Scott Kessler, an equity analyst with CFRA, said Snap has much to prove: “I think, very much like Facebook before, the key to the company’s longer term success is whether they’re able to move from more of a niche product, catering to younger people to one that becomes broader, not just demographically, but around the world. And that’s really the challenge for the company as they look to move from a niche product to a mass market product and monetise accordingly.”
Investors are betting the parent company Snap will be able to convert “cool” into cash from its nearly 160 million users.
But Wall Street cynics point to slowing user growth and the fact that what it does can be replicated by rivals.
— Panorama (@panoramacsuf) March 2, 2017
The newly enriched company has also to mend fences with its neighbours.
It reportedly owns and leases several buildings in the trendy Los Angeles neighbourhood of Venice Beach, better known for surfers and skateboarders.
Love sharing a building w/Snapchat – not.
Ahead of IPO, protesters demonstrate outside Snapchat headquarters https://t.co/t3O4dTn8Tl
— Sarah Sanchez (@SarahSanchezzz) March 2, 2017
Some locals are not happy about its presence there, worried that it will push out long established residents.
Jewelry maker Vivian Robinson, who has been selling her merchandise around Venice Beach for 20 years, said: “The rents are double now and people can’t afford it. The small businesses can’t afford it.”
Her comments were echoed by Wendy Lockett: “They are pushing people who have lived here for generations upon generations out because they can’t afford to live here anymore.”
Michael Matoff, who sells cupcakes in the neighbourhood, was more positive saying: “I see it as a major boon for the community and for the company itself, I don’t know. It’s almost like Venice won the lottery.”
But have Snapchat’s investors won the lottery?
Its best known feature is that images and messages sent using it disappear and the new shareholders must hope that some profits will appear.
Snapchat</a> already has a 'sell' rating, and an <a href="https://twitter.com/hashtag/analyst?src=hash">#analyst</a> thinks it will crash 58% - <a href="https://twitter.com/hashtag/SoMe?src=hash">#SoMe</a> <a href="https://twitter.com/hashtag/IPO?src=hash">#IPO</a> <a href="https://t.co/7f5CuPfQsF">https://t.co/7f5CuPfQsF</a> via <a href="https://twitter.com/BIUK_Finance">BIUK_Finance
— Irene Nyberg (@inyjar12) March 2, 2017
— Steven van Ostaayen (@SvOstaayen) March 2, 2017
— Business Insider (@businessinsider) March 2, 2017