Has Snapchat snapped? The stock has had a rocky ride since flotation but may yet surprise. First up: second quarter results

Tracey Boles
Source: Getty

Snap, the owner of the video messaging service popular with the under 24s, has endured a bumpy downhill ride since floating in the US in March.

At its high-profile IPO, the self-proclaimed “camera company” was touted as the next big thing in tech. Its stories feature, timed expiry of messages and edited emoji tools set it apart from the standard communication apps. The narrative was lapped up by hungry investors. Shares listed at $17 and quickly rose to $27, valuing the company at $30bn. It was an impressive debut considering Snap only launched in 2011, and had yet to turn a profit.

But since the flotation the flow of negative news has been nonstop, and a malaise has gripped the once-hot stock. Mounting concerns over lack of investor voting rights have contributed to broker downgrades and the stock's exclusion from key indices, while Facebook has launched a competitor to Snapchat stories. Last week, shares hit an all-time low of $11.91, well below the IPO price.

There was some respite at the end of last week when WPP CEO Martin Sorrell said that the advertising giant plans to double its spending on Snapchat ads this year. The $200m planned is much less than the firm spends with Google or Facebook, but significant for Snap. Shares bounced on the news, but the next key test of the share price will be Thursday's second quarter results.

Against this backdrop. Jordan Hiscott, chief trader at Ayondo markets, sees the emergence of a “two tier tech” industry: smaller, less established tech companies struggle with high cash burn rates to keep up with technological advances, while dominant companies such as Facebook and Google power on with loss-making projects without it really affecting their share price.

By the end of this week, we may have a clearer idea which camp Snap, once touted as a pretender to Facebook's tech throne and an object of its takeover ambitions, is destined to join. Despite the current challenges, let's not underestimate Snap's ability to come up with an innovation flourish before too long, the likes of which captivated the market in the first place.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles