What To Understand About IPOs In Terms of Snapchat

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Yay! A company just went public! Let's buy some stock in it, pronto! Uh, not so fast. When companies launch an IPO, the tendency is to buy. It shouldn't be. As we've seen over the years, this plan can quickly go awry.

Of course this is in reference to Snapchat's IPO launch this past week, which has been quick successful thus far. It's stock price has surged since last Thursday despite top industry analysts predicting it would likely fail. So will it? Well today, Monday, March 6th, it's finally showing signs of volatility, dropping nearly 7% in early trading.

As we've seen with other social media platforms, going public doesn't guarantee furthered success. In fact in many cases, it can mean the opposite. Remember Facebook?

Facebook had a notoriously rough first year as an IPO. It opened with a stock price of $38/share and struggled to gain traction in its early days. After opening in May 2012, the IPO began to tank and by September was trading at $17.55.

Facebook has certainly recovered from those tumultuous times and is up to $137/share, which makes sense given the breadth of its platform—ample content, advertising options, business pages, videos, articles, etc.

While many analysts are panning Snapchat as an imminent failure, some recognize that its bar should be set considerably lower than Facebook's. Snap earns merely a fraction in annual revenue compared to Facebook. Given that its price is starting out at just about half of the social media giant's, it is already vastly exceeding expectations.

Does this mean it's wise to buy Snapchat right away? Probably not. It might better serve your interests to play the waiting game, at least until the price begins to stabilize. There's also a growing fear that Instagram will swoop in and overtake Snapchat in just about every way, especially since it's backed by Facebook.

There's already evidence that Snapchat is losing some viewers since the launch of Instagram Stories last August, and the fear is exacerbated by Snapchat's struggle in building a user base that's older than 25.

That said, it's still too early to jump to conclusions on any of this. Let's appreciate what Snapchat has done in its short existence and praise Evan Spiegel all the way to his billion dollar bank deposit. Even if things go wrong soon, at least Spiegel has Miranda Kerr in his corner. That my friend, you can't put a price tag on.