Friday, March 3, 2017

Snap Inc. IPO Jumps 44% on First Day

Snapchat has, since its release in September of 2011, continuously updated and found new ways to attract its expanding base of users. Most recently, the company was planning on adding functionality to help users find their friends and stay updated during emergency situations. From funny videos to reality-distorting filters, Snapchat has stayed technologically in tune enough to keep boosting demand and stay competitive with other social media networks. This week's L.A. Times article by Tracey Lien, Paresh Dave, and Nina Agrawal detail's Snap Inc.'s initial public offering (IPO) and what it means for the company as a whole.

On Wednesday, Snapchat's stock was priced at $17. Within 24 hours, it leaped to a closing price of $24 on Thursday, where it had peaked at $26 for a short time. That 44% gain is the kind of "pop" that can indicate massive success for a new stock offering. It usually means that the stock is in high demand among investors. However, it could also mean that the company purposely "left money on the table," setting the stock at a price lower than it was worth.

Analysts found that Goldman Sachs, Morgan Stanley, and other big investment banks had orders for 10 times the number of shares Snap was willing to sell, so they could easily have charged more than $17 per share in order to make extra money. However, in raising the cost per share, they risk reducing demand. While one or two dollars extra per share would have been unlikely to have any significant impacts on overall demand, if Snap had chosen to open at $22 or $23 per share, the market would probably have shown much less interest, and it's possible that the stock would have busted.

To many investors, it's far more impressive for a company's stock price to rise rapidly than to stay steady at an already-high price. It was a smart plan for Snap Inc. to set their stock price at a lower level, giving it room to grow. There is a possibility that if they had started it high it may have ended even higher, but in all likelihood, people would have shown much less interest in the company and not bought at such high levels. Either way, however, investors are unhappy if prices fluctuate too much from their original levels. Whether they start high and drop or start low and pop, investors become concerned. Therefore, the best way for a company to keep its investors happy is to try to predict a stock price that will stay steady through its IPO.

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