Snapchat’s owner, Snap (NYSE:SNAP), arguably sold SNAP stock to the public too early.
The evidence to support such a theory is the steep selloff SNAP stock suffered following its IPO in March 2017. Unable to effectively tangle with Facebook (NASDAQ:FB) or Twitter (NYSE:TWTR) , SNAP had fallen 70% below its initial public offering price of $17 as of late-December 2018.
The story has taken a decided turn for the better in just the past few months, however. Aside from the fact that SNAP stock price has jumped nearly 300% from December’s low, Snapchat has figured out how to get — and keep — its users engaged. Its revenue continues to rise, and better still, its losses are starting to shrink dramatically.
Most importantly, investors can now buy SNAP stock at a price less than what the initial buyers paid for it a little over two years ago. Meanwhile, Snapchat stock poses less risk now than it did then.
Mistiming Isn’t Anything New
Going public is a tricky business,. An IPO that occurs too soon leaves a stock vulnerable to the fact that it can take years for an organization to work out all of its kinks. Waiting too long runs the risk of missing out on the market’s love for new ideas; it also gives rivals a chance to replicate the company’s business model.
Both Twitter and Facebook also mistimed their IPOs.
Twitter went public in 2013, but it didn’t realize at the time that merely having a platform wasn’t enough. It wasn’t until 2017 that the company recognized that it has to facilitate discussions (ok, arguments). Its then-new strategy made a point of leading users to a so-called “long tail” of topics to talk about, including sports. It’s also inked several deals that allow it to broadcast professional sports.
Facebook has always been Facebook, even before its 2012 IPO. The stock spent its first year as a publicly-traded instrument in the red though, not so much due to well-touted trading glitches, but mostly because the then-looming migration from desktops and laptops to mobile wasn’t fully foreseen or handled effectively by FB.
In the same vein, Snapchat wasn’t quite ready for prime time when it went public in the middle of 2017.
Its user growth was already slowing down heading into the IPO of SNAP stock. That headwind became an outright undeniable reality in August of last year. That’s when Snap’s second-quarter report indicated that its average number of daily users had fallen for the first time ever. A relatively unpopular (and highly criticized) redesign of the app’s interface was the culprit.
There was always a method to the madness, though.
Advertisers Loved the Redesign
In order to make the ads that appeared on Snapchat worthwhile to advertisers and drive coveted clicks, Snapchat’s Android app had to be redesigned. Some users revolted, but advertisers loved it.
Meanwhile, now, unlike in 2017, investors can rely on the company to deliver top and bottom-line growth.
Moreover, the site’s daily-user headcount ticked higher again in Q2. The figure of 190 million was only 4 million higher than the previous quarter’s 186 million, but it’s progress at a time when some suggested Snapchat’s best days were behind it. Ongoing improvements that have been put into place in the meantime seem to be resonating, too. In May, SensorTower reports, the Snapchat app was the United States’ most downloaded app.
Clearly, SNAP is doing something right.
The Bottom Line on SNAP Stock
Now Snapchat has become the company that the SNAP stock bulls of 2017 thought it was then The company still had a couple more important things to figure out as of 2017, though. Namely, young CEO Evan Spiegel had to figure out the fine balance between enough advertising to satisfy shareholders and excessive advertising that sends users elsewhere.
It appears he’s found the balance.
Those who waited to buy SNAP stock until this year have learned that patience pays off.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.