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Snap closes IPO on a high, but will it last?

Snapchat’s parent company Snap ended its debut on the New York Stock Exchange yesterday with shares at US$24.48 a pop. With the IPO price of US$17, people who bought shares yesterday saw a 44% premium — a significant achievement considering most companies price their IPOs for an expected 20% increase.

But this first day success does not necessarily mean the company is set for a happy ending.

Many have been drawing comparisons between Snap’s IPO and Twitter’s. The latter finished its first day with a gain of 72.69%, but the following months proved rocky. Facebook, on the other hand, closed its IPO at only 0.61%, but saw a steady growth and sat at number five on Forbes’ most valuable brands list at the end of 2016.

What makes the company’s debut precarious is their timing. The company decided to go public despite slowing global growth and a net loss of over $510 million last year. These bumps likely stem from the fact that what makes Snapchat great is easily copied onto other platforms. Facebook’s Instagram and Whatsapp have both picked up the stories feature in the last year. And while Snapchat is innovative, experts say it does not retain the same brand loyalty as Facebook and its subsidiaries.

According to an analysis by IHS Markit, Snap needs to hold onto its loyal audience if it wants to keep flourishing in the NYSE.

“It is vital that Snap maintains its loyal audience to mitigate the impact of competitors copying its features,” the analysis reads. “Building a business purely on cool youth brand appeal may not be a sustainable long term bet.”

Snapchat parent company Snap had a great debut on the stock market, but experts question whether this will last

Snap has retained its relevance because of its innovation — from messages that disappear to stories to augmented reality. But how long until a new “cool” brand comes to steal its spotlight?

“If Snap is unable to remain innovative, an emerging next cool app could replace it. In launching new features and deploying advertising, Snap must also be careful not to disrupt its communications proposition. Communication features are crucial to maintaining high levels of engagement within the app and across a wide network of users.”

It doesn’t help that Snap’s key demographic is young people. The group is fickle, and not ideal when seeking advertisers. And because the likes of Facebook and Twitter have users from all age groups, they are able to pull advertising from a far larger pool than Snap will be able to.

But Snap seems to understand the limits that bind the app’s growth, and has been branching out into hardware as well.

“Snap’s move into consumer hardware with Spectacles points to a broader platform strategy. By offering a varied portfolio of products and services Snap will compete with a much wider range of companies that may have very different business models,” IHS points out.

Feature image: Anthony Quintano via Flickr (CC 2.0, resized)

Author | Julia Breakey

Julia Breakey
Julia is a UCT film graduate with a passion for dogs, media, and dog-centric media. If she's not gushing about the new television show that you need to watch, she's rewatching The Good Place (which you need to watch). More

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