Snapchat Crashes Below IPO Prices

A big psychological level was breached today when Snapchat crashed below its IPO levels.

Unlike Blue Apron, which struggled right from the get go when it went public, Snapchat soared higher after going public four months ago.

On its first day of trading, Snapchat opened way above its $17 IPO price at $24 and rocketed higher to a peak of $29.44. But in intraday trading today, Snapchat breached its IPO price and fell to $16.95 and, most significantly, Snapchat closed just below the key psychological level of $17 today at $16.99.

Still, Snapchat has a valuation that rivals some major firms. Its market capitalization is above $20 billion, which is about a third of the current valuation of Netflix, though significantly lower than the value of Facebook, which is over 20x larger.

But if you had to guess which company, Snapchat or Twitter, has a higher valuation, which would you put your money on?

You might ordinarily guess the answer is Twitter. After all, Twitter been around longer and has more brand awareness. Snapchat is adored by the youth, Generation X, but it hasn’t enjoyed wider appeal among older generations just yet. Mom, Dad, Grandma and Grandpa aren’t on Snapchat as they are Facebook.

Yet, Snapchat, despite having declined over 40%, still has a valuation almost 50% higher than that of Twitter.

Snapchat Top Institutional Holders

Snapchat has broad holding among institutions. The following companies all own more than 1% of Snapchat:

• FMR, LLC
• T.Rowe Price
• Coatue Asset Management
• JP Morgan Chase & Company
• Sands Capital Management
• Blackrock Inc.
• SC US (TTGP)

Snapchat Analyst Ratings

The 27 analysts who cover Snapchat aren’t exactly glowing in their outlook. On a 5-point scale where 1 is a Strong Buy and 5 is a Strong Sell, Snapchat rates a 2.7, which is closer to a Hold than a Buy.

Some believe that free trading the Snapchat float is causing it to be artificially inflated. A billion shares are free to trade on July 29, which if they hit the market on a stock that transacts 17 million shares daily on average, may cause the bottom to fall out of the stock – watch out below!

How To Trade Snapchat

If you are looking to take advantage of a freefall in Snapchat shares from current levels to much lower levels, purchasing long put options is a way to make money from a decline.

Unlike short stock, which has unlimited risk if shares move in the wrong direction – up – long puts have limited risk, so the dangers are also contained. If the stock goes up the puts lose value, but the most they can lose is the most you pay for them.

If Snapchat falls in value, Snapchat long put options make money as long the share price falls to a level below the long put strike minus the cost of the put by expiration.

A Less Risky Way To Invest Than Buying Snapchat Shares?

If holding a concentrated portfolio of stocks doesn’t appeal to you because of the risk, then investing in index funds or a robo advisor, such as Betterment, may be a better bet.

If you choose the path of investing in index funds, then it is imperative to keep fees low. Whereas if you choose a robo advisor, the experience will largely be a hands off experience where the robo advisor handles everything from start to finish, including tax-efficient benefits, such as tax loss harvesting.

The downside is that you won’t necessarily be able to trade in and out of the market as you might be able to in a regular brokerage account. However, investing for the long-term is often a more fruitful approach than dabbling short-term in the markets with frequent buy and sell transactions.

If holding individual stocks is too alluring to stay away from, then in the social media investing space, Facebook may be the better bet. With over 2 billion daily active users, Facebook has almost 1 in 3 humans globally on its platform.

Its earnings are set to increase continually for the next decade according to analysts, which acts as a cushion below which the stock price is unlikely to fall. Even if the price-earnings multiple diminishes, Facebook share price has some decent support under it – perhaps not short-term but certainly long-term if earnings grow anywhere near expectations.

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