Snapchat finishes its first day of trading on the NYSE at $24.48, about 44% higher than its price of $17, at a market cap of $28bn, Ok, the SNAP IPO is another tech mega IPO with a lot of expectations – but what now – does it go north or south from here? Some pointers:

1) User base growth is shaky. It’s user base trebled from 46mn users in Q1’14 to 122mn in Q1’16. Terrific! But after averaging a growth of 15mn Daily active users (DAU) for the first three-quarters of 2016, it reported a paltry 5mn DAU for Q4’2016. High user base effect or increased competition? Temporary blip or flawed business model?
2) It’s competition is formidable and target age group(teens) fad followers. With resource-rich Facebook’s Instagram easily matching Snapchat’s functionalities, its barrier to competition is definitely low. And what if it goes out of fashion?
3) It’s cost structure is high – it uses outsourced storage for which it is paying $2bn to Google’s cloud over five years. Given that computing power is a major part of the cost of revenues, will an outsourced model be sustainable or pose a dependency risk in the long run, especially when Instagram uses servers owned by its parent company.
4) Skyhigh valuation with no voting rights. It is a big money loser for now with losses growing from $373mn in 2015 to $514mn in 2016. And it listed at a P/S of ~60x. That’s way too much to pay for no profits on the books and no shareholder rights
Is the hype overshadowing substance?

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