2017-03-02 21:55:06
Snap Shares Leap 44% in Debut as Investors Doubt Value Will Vanish

Snapchat is a business built in large part on disappearing messages and adding animated dog ears and flower crowns to users’ selfies.

As of Thursday, that business is worth about $34 billion — more than the market value of the old-line media company CBS, and about three times the size of another social media company, Twitter.

Snapchat has made paper billionaires of its 20-something founders five times over.

In making its stock market debut in spectacular fashion — its shares rising 44 percent on their first day of trading — Snapchat’s parent, Snap Inc., has blazed a trail for other technology darlings like Uber and Spotify that remain privately held. It elated Wall Street institutions eager for a prominent initial public offering when few had surfaced for months.

The company has entranced investors despite a litany of red flags, like enormous losses that are expected to persist for years, a slowdown in its once-vaunted user growth rates, and an ownership structure that gives Snapchat’s founders control for decades to come.

Then there are the shadows of onetime tech highfliers that have since crashed to earth. Twitter was valued at nearly $32 billion at the end of its first day of trading; Wall Street now values it at roughly $11 billion and has called for the company to sell itself. An earlier force in social media, Myspace, sold itself to Rupert Murdoch’s News Corporation for $580 million in 2005; six years later, it was sold to Justin Timberlake and other investors for $35 million.

Some analysts have already shown skepticism about the newest publicly traded tech giant. One, Brian Wieser of Pivotal Research Group, says the share price should be $10, far below the company’s offering price of $17, which itself was above the initial range predicted. Snap faces competition from larger companies and the challenge of a slow-growing user base, he said.

Boosters of Snap’s prospects argue instead that Snap has the potential to become less like Twitter and more like its biggest rival, the $395 billion Facebook. These supporters point to some of the company’s obvious strengths: the 158 million people on average who used Snapchat each day by the end of 2016; the roughly 18 times a day that those users opened the app on average; the $404 million in sales that it collected last year, up from nothing three years ago.

For now, investors appeared to focus on the positive. Snap raised $3.4 billion in its market debut, the most by an American tech company since Facebook’s initial offering in 2012, according to data from Renaissance Capital. It was the first significant tech stock sale since at least December. And the 44 percent pop in its stock price was the biggest enjoyed by a company of a billion-dollar I.P.O. since Twitter’s debut in 2013. More than 217 million shares traded on Thursday, as some investors bought and others cashed in, exceeding the number of shares Snap sold in the I.P.O.

For investors in other still-private unicorns — a term for start-ups valued at more than $1 billion — the immense success of Snap’s deal highlights the appetite for a tech darling, even if the company still bleeds money. Count Uber, Spotify and Airbnb within that group.