Snapchat's parent company was valued at more than $30bn (£24bn) on Thursday as investors brushed off fears about heavy losses to send shares soaring in the biggest technology float for years.
The 41pc share price leap as Snap debuted on the New York Stock Exchange in the biggest listing for a tech company in three years. It makes the messaging app’s 26-year-old founder Evan Spiegel, who founded Snapchat six years ago, worth more than $5bn.
Wall Street and Silicon Valley have waited for the initial public offering with baited breath as a barometer of the appetite for technology flotations, with a wave of start-ups worth billions of dollars primed to tap the public markets.
However, Snap’s heavy losses and slowing user growth have drawn unflattering comparisons to Twitter, which has endured a tumultuous few years as a public company, and the sale of shares without voting rights has created corporate governance concerns.
Snapchat’s has 161m daily users, much less than Instagram and Facebook, and its user growth has slowed in recent months. It lost $515m last year despite soaring revenues, and has warned it will continue to be in the red in the near future.
The concerns barely seemed to register on Thursday as Snap, which had raised $3.4bn at $17 a share, opened trading at $24. That gives it a $28bn valuation, but with the stock-based compensation for employees due over the coming months, the company has an implied value of some $34bn.
Mr Spiegel and his co-founder Bobby Murphy rang the opening bell at the NYSE, with the stock exchange decked out in Snapchat livery and Mr Spiegel’s fiancée, the model Miranda Kerr, in attendance.
Snapchat was founded in 2011 as a way to send disappearing photos over smartphones, an ephemeral alternative to the permanent digital baggage that exists on rival social services like Facebook and Twitter.
It has since expanded into a media outlet for news organisations, adding multiple features to the app, and exploring other areas. Last year it branched out into hardware, releasing a pair of camera-equipped sunglasses known as Spectacles. It recently opened an international office in London, where it will register its non-US advertising sales.
Among its 161m daily users it counts a roster of celebrities including the reality TV star Kim Kardashian and popstar Justin Bieber and a dedicated base, with the average user spending between 25 and 30 minutes a day on the app.
Revenue leapt last year to $405m, but so did losses, which widened to $515m. More concerning to potential investors has been signs of slowing user growth, drawing comparisons with Twitter, which has slumped in value since its own IPO.
Snapchat is being aggressively targeted by Facebook, which has successfully brought many of the app’s features into its own services, Facebook, Instagram and WhatsApp. Analysts see confidence in Snap as faith in Mr Spiegel’s ability to ride out the challenge from Facebook.
“High valuation metrics in of themselves does not necessarily make a poor investment,” said Neil Campling, global head of TMT Research at Northern Trust Capital Markets. But by far the most critical characteristic for high multiple, high growth companies in our view is the sustainability of competitive advantage. And this is where we have long term concerns for Snapchat because of the aggression of Facebook.”
Investors have also criticised Snap’s sale because of its split stock structure. The shares being sold have no voting power, and Mr Spiegel and Mr Murphy will have ultimate control of the company.
US markets have been starved of high profile technology flotations in recent years, and a string of start-ups are believed to have been watching Snap’s closely. The likes of Uber, Airbnb and Dropbox, all of which have been privately valued at more than $10bn, are seen as potential IPO candidates in the coming months.