Thursday 02 March 2017 11:00 pm

Snap shares sparkle and pop on first day of trading as it gets valued at around $28bn

Shares in tech company Snap, parent of messaging app Snapchat, jumped more than 40 per cent in their first day of trading on the New York Stock Exchange yesterday, defying doubts about the company’s early-stage business model, losses and slowing user growth.

In a frantic day of trading, shares changed hands at more than $25, well above the $17 indicative offer price.

They closed at $24.48, valuing the company at around $28bn.

Snap Inc is the most talked-about tech IPO since Facebook. It began life six years ago, when three friends met at Stanford University, initially to develop a photo sharing app called Picaboo which morphed into Snapchat, the disappearing photo app. Growth has been rapid and it now has more than 161m daily users. However, it has never turned a profit.

Co-founder Evan Spiegel, who earned $272m (£220m) on the offering and is now worth around $4.5bn, rang the exchange’s opening bell before trading commenced on the IPO – which was 10 times oversubscribed.

Professor John Colley of Warwick Business School said Snap had benefited from institutions and individuals being awash with cash. He said: “There is far more cash than opportunities, which means pursuit of long odds risky options such as Snapchat. Investors cannot even be certain what they are really investing in as they do not get voting rights.”

Analyst reaction to yesterday’s debut was mixed. Ken Odeluga, market analyst at City Index said the much-hyped IPO followed “the dot.com playbook almost to the letter”.

“Snap’s other similarities with the deluge of tech IPOs at the cusp of ‘dot.com bust’ are now well-known and not all are disreputable. Take your pick from an absence of profitability versus escalating sales; galloping costs against decelerating usage or Snapchat’s intriguing niche – 86 per cent of users are under 35 – versus arrogant flotation terms like the notorious lack of voting stock.

“The probability that Snap will disappear in a puff of yellow smoke admittedly look slim. But with a cash burn rate of $1bn in two years, a popular but loss-making product and a 26-year-old CEO, investors do seem to be bidding up the price of a bumpy ride, at best,” he added.