BY JOSEPH KRASSNER
Social media plays a significant role in our lives, whether it’s used to obtain news or to chat with friends. In an attempt to be taken more seriously in the world economy, social media companies have taken to the stock market, releasing shares of their companies to the public. On March 2, Snapchat released their Initial Public Offering (IPO) to the stock market at twenty-four dollars a share, forty-one percent higher than its original issue price before the market opened. Despite having one of the largest IPO’s since 2014 according to Market Watch, Snapchat has understandably experienced a downward trend in its share value.
Social media platforms are a risky long-term investment, and most investors are aware of this. One factor that investors often examine before investing in a company is its popularity. In the case of Snapchat, the measure of popularity would most likely be calculated by the number of active users and whether user growth is pronounced. In 2016, Snapchat gained over fifty million daily users according to a Recode article. However, in the last quarter of 2016, Snapchat only gained five million new users. Many investors are worried that the popularity of Snapchat might be declining, and this uncertainty might convince people to sell their shares early or simply to not invest at all. In a CNN article published before Snapchat released its IPO, John Norris, the managing director of Oakworth Capital Bank, claimed that both he and his firm would not purchase any Snapchat stocks because Snapchat does not have ads, an unconventional business move that could limit potential profits. In reality, though, one reason that Snapchat is popular among a diverse group of people stems from the fact that Snapchat does not have ads, which can be seen as bothersome to some. Nonetheless, investors continue to worry about how Snapchat will fund a growing user rate without the use of ads. According to the website Business Management Degree, Facebook made about eighty-two percent of its net 2012 revenue through the use of advertising among its over one billion monthly active users. Even though Snapchat has not met this number of active users, the question of what effect ads could have on Snapchat still needs to be explored.
Snapchat made a major mistake in terms of the types of shares they sold upon releasing their shares to the market. Many investors were left dumbfounded as to why the company only released its Class A shares, which are non-voting shares, because these shares indicate that investors don’t have a say in the company. This is quite a troubling compromise because owners of Snapchat’s Class A stocks have no say in the future of the company. It therefore makes sense that investors are uncomfortable with these stocks, leading many to abandon Snapchat’s stocks and their share in the company’s potential profits.
Despite Snapchat’s appeal to a wide variety of people, the company’s marketing decisions show that it is not ready to release public stocks. The company has some serious maturing to do if it wants to be considered a serious player in the world’s economy.