Will Snap crack after its IPO pop?
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Will Snap crack after its IPO pop?

Amid the brouhaha over the surging stock-market debut of Snapchat maker Snap last week, it would be easy to forget the old caveat that stocks can go down as well as up.

Not all fast-growth companies stay relevant in the long term although Snap appears to be remarkable. Its stratospheric valuation can be attributed in part to the value of messaging environments and their stickiness – that is, their ability to attract and retain users in the virtual web of conversation. As I write this, shares in Snap have fallen to their all-time low but, given that the company’s stock has only traded on the New York Stock Exchange for less than a week and it has a market cap of over $30bn, I’m sure its supporters will live with that.

That prime valuation is a modern phenomenon that makes Snap “worth” (the quote marks are surely needed here more than ever) more than twice as much as International Airlines Group (IAG), which owns British Airways and Iberia, and over a third more than the UK supermarket leader Tesco, or about the same as the US retailer Target. Adobe, a veteran of the software sector, is about twice the size of Snap by capitalisation.

Pretty good for a company founded only five-and-a-half years ago, huh? But then messaging companies are enjoying a golden moment. WhatsApp was incorporated in 2009 but Facebook paid about $19bn for it just five years later. WeChat, owned by Chinese giant Tencent, is pegged by some analysts as being an $80bn concern. Next to that, Korea’s Line Corp, the pick of tech IPOs on the US markets last year, looks positively tiny at $7.5bn. And an acquisition such as Facebook’s purchase of Instagram for $1bn, shocking at the time, will make even twentysomethings feel very old.

The digital advertising money-gusher is reconfiguring the way we value internet companies and messaging and social networking companies are the golden assets of today. Of course, not all messaging apps make it. (Tango, anybody? How about YikYak? Hmm. Yubl?). But the ones that do disrupt the ancient telecoms market and its incumbents in one of the most stark examples of disintermediation ever.

But even Snap is not safe from a consumer backlash nor secure in its valuation. Facebook has succeeded in part because it has been able to add more properties to its portfolio to secure its place. But MySpace, Bebo, Friends Reunited (and even Google+) show that it’s possible to be dethroned. That’s why Snap is investing in news and other services to keep users onside.

It’s the battle for stickiness that is as old as the web itself, and it never ends.

 

Also read:
Up and Up: The sheer scale of WhatsApp
Counting in billions: The messaging goldrush

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Martin Veitch

Martin Veitch is Editorial Consultant for IDG Connect

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