Snap Inc.’s IPO soars but will it ever make money?

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Spectacles are no longer a U.S. exclusive.
Spectacles are no longer a U.S. exclusive.
Photo: Snap, Inc.

The photo sharing and messaging app Snapchat is a hit with kids, but on Thursday its parent company was fun for investors who made it the day’s most heavily traded stock on the New York Stock Exchange.

Snap Inc. made its debut with shares priced at $17, but high investor demand quickly raised it to $24, putting the tech company’s value at close to $33 billion, according to reports.

But all that green isn’t likely to change the red color on Snap’s bottom line anytime soon.

The company has yet to turn a profit in five years, losing more than $500 million in 2016. Some market observers say Snap is over-valued and doubt whether its two 20-something founders, Evan Spiegel and Bobby Murphy, can make it profitable.

Snap “is significantly overvalued,” Brian Weiser of the private research firm Pivotal Research Group, which gave Snap a sell rating, told CNBC. “Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies with a core user base that is not growing by much and which is relatively elusive.”

That base, 158 million users as of December 2016, is mostly teens and millennials, who share more than 2.5 billion photos and messages per day. They like Snapchat’s settings that feature disappearing messages or video lenses that put animated overlays on faces.

Its main competitor, Instagram, practically copied many of Snapchat’s best features, especially the privacy settings and stories, saw an increase in engagement afterward. Instagram has more than 600 million users and has Facebook as its parent company.

The climb ahead for Snap is steep.

Snap took steps late last year to grow from an app into a company with a range of products. Spiegel and Murphy changed the name to Snap Inc. to reflect a new mission of being a camera company.

Its yellow home page is spare and states: “We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.”

With the name change came the company’s first camera hardware, Spectacles, sunglasses with a hip look featuring a discreet video camera built into the upper corner of one lens. Snap is also reportedly developing camera drones and 360-degree cameras.

Whatever happens, Spiegel and Murphy can enjoy the excitement of the company they created in their college dorm room going public. Each earned $272 million from selling some of their shares before the opening bell, CNBC reported.

Source: CNBC