The hype over the company Snapchat going public on the New York Stock Exchange has been almost obnoxious. This has happened only over the past couple of weeks. During that time, many have asked time and time again, Should I invest in Snapchat? Or, do you think that it will be a bust in the long-term?
In this article, we are going to look at what this company is and what it does to make money. You will learn how you can buy it. Also, you will see whether or not it should be considered as part of a long-run investment portfolio strategy.
General Information about Snapchat
Snapchat is an electronic media company and smartphone application that was founded in 2011 by three creators. These were Evan Spiegel, Bobby Murphy, and Reggie Brown. The general premise of the app is that it allows friends to send multimedia communications to one another. This multimedia will disappear a few seconds after the receiver has viewed the message. In the first Snapchat blog post ever released, CEO Evan Spiegel described the company’s mission as the below.
Snapchat isn’t about capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion—not just what appears to be pretty or perfect.
Spiegel believed that by allowing media to be sent on a short-term basis, humans would have the ability to communicate fully without fear of reprimand. The Snapchat application quickly caught steam with Millennials and younger generations. This is because many college-aged students and teens using it on a daily basis to communicate. However, many parents have become dismayed by Snapchat. The illusory nature of communications will often ensnare children and young adults into sending pictures and messages that are often inappropriate and unethical. Furthermore, the FTC has made claims that Snapchat does not protect the privacy of its users to the extreme degree that it claims to,. So this leaves to speculation that some data is either stored or available to outside hackers.
Is Snapchat Publicly Traded?
On Wednesday, March 1st, Snapchat officially filed to go public on the New York Stock Exchange. It became an official publicly-traded company. Originally, CEO Evan Spiegel was hoping that the shares would have an initial private offering (IPO) price of $14-16. Thus, it was much to his surprise when the company IPO’d at $17 per share on Wednesday. Then, it proceeded to soar to over $27 per share by Friday.
Now, shares of Snapchat Class A common stock are regularly trading hands every day on the New York Stock Exchange.
Snapchat Stock Price Estimate
Looking at the financials of Snapchat realistically, things aren’t looking good from day one. According to this article by market researcher Mike Rothschild, Snapchat has lost more money every single year that it has been in operation. In fact, it lost roughly $372 million in 2015 and nearly $515 million in 2016 according to SEC filings.
So, why in the world are share prices being bid up so quickly? Well, many believe that Snapchat will one day become profitable from advertising revenues. This is speculated because it comes from a growing daily active user base. The proof of this might just be in the pudding, as they say. As such,Yahoo Finance is currently issuing a $17.86 one-year target estimate price for Snap. However, the price should be much lower, pottentially as low as $8 per share.
How to Invest in Snapchat
With that said, you may like to invest in Snapchat regardless of expected outcomes. In this case, you may do so by setting up a brokerage account with any broker-dealer (i.e. Schwab, Fidelity, Tradeking, etc.) and issue a buy order for their stock.
Simply search for ticker symbol SNAP, and you will be directed to where you can purchase Snapchat stock. It currently trades for just under $21 per share as of March 15th.
Answering the Debate: Should You Invest in Snapchat?
The answer to this question is between clear and foggy. As you might have seen above, the estimations are not optimistic. However, these numbers do not include the users database. Whenever an investor focuses on a company, he does so based on what he believes he can receive from the company as a cash dividend in the future. As a result, stocks are priced based on their expected future free cash flow. Snapchat is a company that does not expect to ever be profitable. This can mean that it should never have free cash flow with which to distribute dividends to its shareholders.
Yes, Snapchat may have low chances to turn the corner through great management and become profitable within the next five years. This comes in line with the security risks and the delicate stage that the company is in daily due to it. However, the odds are not always predictable. The public is open to discussion and it does not know or take interest in numbers. Take the Snapchat filters as examples. They are now famous all around the world, even if the network is popular mostly in the US. These may have attracted a higher number of users.
When Can I Buy the Stock?
Supposing that you feel mighty lucky, you will be glad to know that you can purchase Snapchat shares right now. You can do this by logging into your favorite broker and issuing a trade order. You may also want to initiate a position in Snapchat but you are wary of the level of volatility that this stock has been facing. Then, it may be wiser to buy put or call options.
So you can gain some exposure to the stock without having to take on the full risk that comes with owning it outright. Investment is about taking advantage of options. And, in this case, you should use them.
Wrapping It Up
Snapchat is already a controversy in itself – successful, but fragile. Its high usage does not seem to be visible also in numbers. But it has a basis. So in the end it is a matter of choice and knowledge.
You may have already traded Snapchat in the market. Then, consider leaving your ideas on the stock in the comments section below. Alternatively, we encourage anyone looking to invest in Snapchat to take part in doing your due diligence and research.
Images from pixabay.com.