In its first week going public, Snap Inc., Snapchat's parent company netted $3.4 billion through the sale of 200 million shares. Despite a strong start, stock in the company has already fallen, leaving many investors to wonder if the company's public status is viable. Assistant Professor Kuncheng Zheng, a corporate finance expert weighs in.
“If you really want to buy Snap stocks, think of it as buying a lottery ticket, and make sure the amount of money you spend on it only accounts for a small amount of your trading account,” said Zheng.
Many investors now wonder if buying stock in Snapchat is actually worth it over time.
The company lost $515 million in 2016 and stated in its Securities and Exchange Commission filing that it may never achieve or maintain profitability. Some recent reports have indicated that Snapchat is doing what it can do increase revenue and users, including a possible play into recreating television ads on the application.
Zheng does see some holes in this plan though, especially in terms of growth and future earnings.
“As a relatively new competitor in the social media network, talking about wringing out more money per user instead of increasing its user base gives me an impression that the potential of Snap is close to exhausted. Without much ability to increase user base, it would be hard for Snap to become profitable considering the $500+ million loss in 2016 and the company's 1,800+ employee base,” said Zheng.