Worries over Snapchat as share price plunges after IPO

Global Business

Worries over Snapchat as share price plunges after IPO

The world’s gone crazy for Snapchat.

The app, which started out as a way for sending self-destructing video messages, has become one of the biggest names in the app world.

CGTN’s Phil Lavelle reports.

Downloads are through the roof across iOS and Android. What makes it even better is that it’s free. At least, it’s better for users, but not so much for shareholders.

That’s because since Snap Inc, the parent company, went public in March, stock prices have plunged.

Some experts expected that to be the case: the company was valued at around $24 a share, giving the company a valuation of $33 billion.

But the big question asked at the time, is it worth it, is now coming back to haunt investors, who are worried about where Snapchat is going to make its money from.

And as that question is repeated ever loudly, the last few months have seen share prices tumble from as high as $28, to as low as $11 each.

“I think there’s a lot of investors who feel like they may have paid too much for their stock and its uncertain if they’re going to get their money back,” says Garrett Reid, Los Angeles Business Journal Technology Correspondent, “The price has fallen a lot since its initial public offering and the company needs to show it has a sustainable business model and a way forward, especially against competition like Facebook’s Instagram. And the market right now is hesitant there is a plan for the way forward.”

Facebook tried to buy Snapchat once, but was rebuffed.

It owns rival Instagram though, and has copied a number of Snapchat features across both platforms, which means that Snapchat is coming under double assault.

“I think there’s a sense that Snapchat is in over its head. It’s going against Facebook, which has billions of dollars in cash, billions of users, years of experience building networks and selling advertising within networks. Snapchat has several billion in its account, but the fact is it’s going up against some tough competition and it’s really got to find a way to distinguish itself. The market hasn’t really felt like the company has made a compelling statement or shown how it’s different from the completion and how it could stand out.” Reid said.

But Howard Love isn’t worried, in fact the opposite. He’s super excited about Snapchat.

As a Silicon Valley angel investor with dozens of startups on his books, he’s looking south to LA and has just pumped some of his own money into Snapchat.

“These types of company do have a history of getting massive user adoption and then layering in the revenue sources. That happened with Google. Google went years without doing anything. Remember the blank white home page? No ads, nothing? Facebook did it also in the very beginning. It was like, ‘how are they going to make money?’ Amazon, a decade of people saying ‘they’re never going to make money.’ Remember that? Like, ‘they lose money on every sale’. So, I’m not like overly concerned. If they have the eyeballs and they have the usage, eventually the revenue does follow,” Love said.

The question is whether or not other investors will have Love’s patience and enthusiasm.

In a world where it’s not enough for tech giants to climb to the top, they also have to stay at the top to stay relevant. It’s a tall order. And even with billions in the bank, will Snapchat, or Snap in general, be able to pull that off?