This throwback to Facebook's IPO is one reason why some investors are nervous about Snapchat
Shannon Stapleton/Reuters
The parent company of the messaging-app Snapchat raised $3.4 billion in the tech industry's largest initial public offering since Twitter. At $17 per share, the company was valued at $23.8 billion.
Some analysts have questioned whether that valuation is justified, as Snap has not yet turned a profit and the success of its advertising model remains uncertain.
The shares were indicated to open for trading at $22-$24 per share, likely pushing the valuation higher.
However, one of the biggest tech IPO's of the last several years offers a troubling example of what can happen to sky-high valuations when a social network goes public.
In a note to clients ahead of Snap's IPO, Birinyi Associates published a flashback of Facebook's tumultuous first trading day. Here's Jeffrey Yale Rubin's recap (emphasis added):
"In the days and weeks leading up to the Facebook IPO, there were concerns among Wall Street analysts about Facebook's appropriate valuation as additional shares were to be sold due to high demand. Other analysts expressed unease about FB's business model with advertising and privacy clashing among growth concerns.
Trading was expected to begin at 11:00 a.m. Eastern Time. However, trading was delayed until 11:30 am due to technical problems within the NASDAQ exchange and subsequent IPO cross. After opening Facebook's share value fell during nine of the next thirteen trading days. The day after the IPO (May 21st), the stock closed below its offering price, at $34.03. The stock saw another large loss the next day, closing at $31.00. Not until August 2013 would the stock trade above the first day's closing price."
The good news with Facebook, however, is that it has gained 258% since its IPO. And so far, there haven't been any technical glitches in Snap's IPO process.
- I quit McKinsey after 1.5 years. I was making over $200k but my mental health was shattered.
- Some Tesla factory workers realized they were laid off when security scanned their badges and sent them back on shuttles, sources say
- I tutor the children of some of Dubai's richest people. One of them paid me $3,000 to do his homework.
- Why are so many elite coaches moving to Western countries?
- Global GDP to face a 19% decline by 2050 due to climate change, study projects
- 5 things to keep in mind before taking a personal loan
- Markets face heavy fluctuations; settle lower taking downtrend to 4th day
- Move over Bollywood, audio shows are starting to enter the coveted ‘100 Crores Club’