Snapchat’s IPO : Was going public a mistake?

An IPO is every startup founder’s dream. In COMM 101’s finance class we learned that Initial Public Offerings are a chance to raise money, increase the market value of a company, increase financial flexibility and generally grow the company. But what happens when you experience the opposite when you go public?

Snapchat, an image messaging and multimedia mobile application , filed paperwork on March this year to raise 3-billion in its long-awaited Initial public offering. At the time of the IPO, Snapchat was valued at $24 Billion. This valuation has since dropped to around $15 billion.

What happened in-between?

This drop in price has been largely attributed to Facebook’s success to replicate any unique features that Snapchat has. Snapchat stock took a dip after Instagram unveiled Instagram Stories, a feature which at that point was unique to Snapchat. Asked whether he was scared of Facebook after Instagram launched Instagram stories, Snap CEO Evan Spiegel laughed it off, saying “just because Yahoo has a search box, it doesn’t mean they are Google”(Shen, 2017). While this may be true, it has largely affected Snapchat, mostly because the millennials, who happen to be Snapchat’s target market, no longer have the incentive to choose Snapchat over Facebook’s Instagram.

It seems yet another reason why Snap – Snapchat’s parent company – has received a battering in stock prices since its red-hot IPO  is because of its underwriters. Snap’s share price plummeted about %9 after one of its major underwriters, Morgan Stanley, said it was wrong about Snap stock, and downgraded it(Melloy, 2017).

All this makes me wonder, is an Initial Public Offering the way to go for a growing company that holds much promise and optimism about its future?  In my opinion, I think companies should hold off on IPO’s as much as they can, especially if they are able to raise money through private funding. AirBnb and Dropbox are some companies that have shied away from Initial Public Offerings, and this has enabled them focus on their long term goals without having to deal with most of the con’s of going public, such asperformance pressure, market volatility and a greater risk of a takeover, as we learnt in COMM101’s finance class.

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