The last couple of weeks buzzed with excitement for the Snap IPO and Snap did not disappoint. In one day the tech company raised $3.4 billion during its initial public offering. That is a lot of money.
So what led to investors placing $3.4 billion of faith into Snap?
It could be Wall Street being starved of exciting, potentially high grossing tech IPOs. It could also be Evan Spiegel, CEO and co-founder of Snap. Investing has always had a component built on faith of the vision from a company’s leader. The Snap IPO raises the question: can faith in a CEO be worth billions? Apparently yes.
Snap managed to pull in billions from investors yesterday, but it has struggled to make a profit from its own products. It’s app, Snapchat, is hugely popular. Millennials are gravitating toward Snapchat as the social media of choice over other apps like Facebook and Instagram. Despite this enormous participant base Snap has not been able to fully capitalize on revenue streams from the app, such as advertising.
Advertising profits for Snapchat are unexcitingly low compared to Facebook and Google.
This fact is made even more surprising when you take into account how successful Snap’s experiment in live streaming with Snapchat’s Discover and Live Story channels (including ads from certain brand partners) during the Olympics.
Snap has also developed glasses, called Spectacles. These are fashionable sunglasses that allow the wearer to snap what they are seeing. While these are all solid areas for Snap, a multi-billion dollar company will need more than the ability to turn people into vomiting unicorns, a cool pair of specs and some lackluster advertising to maintain yesterday’s valuation.
So what is next for Snap?
Some analysts have speculated that Snap will look to acquire new tech companies with its newfound equity, certainly a possibility. It seems that the combination of products’ potential and public faith in its CEO have influenced Snap’s valuation more than the bottom line. If Snap’s products are given good leadership by Spiegel and time to development there is no doubt the former little tech start up can become a Wall Street powerhouse. How shareholder’s obsession with profits will factor into that plan we will have to wait and see.