Investing in any IPO is always a risky bet. That’s a big learning lesson for many millennial investors trying to cash in on Snapchat’s IPO. Recent Snap’s stock drop has left a bunch of millennial investors under water since the company went public on March 1.
Snap Inc pulled off the hottest technology offering in three years, but its stock has steadily retreated after the inital two days of explosive gains as investors worry about Snap’s high valuation and lack of profitability. So far Snap Inc shares have tumbled below $20 on Thursday for the first time since the company’s $3.4 billion public listing
“I bought it even when I was pretty positive I would not make a profit in the short run, but just because I am a fan of the product,” said Chris Roh, a 25-year-old software engineer in San Francisco, who has only been trading stocks for about a month on Robinhood, a mobile trading app popular among millennials. Trading activity on Robinhood jumped by 50 percent on the day of Snap’s debut, with more than 40 percent of those who traded that day buying Snap shares. The median age of Snap shareholders on the platform was 26, the same age as Snap Chief Executive Evan Spiegel, according to Robinhood.
New York Post reported: “The stock of Snapchat’s parent company has been on a roller-coaster ride since its market debut last week, surging more than 70 percent from the initial public offering price in the first two days of trading and plunging back down by a quarter since… On StockTwits, a Twitter-like platform for sharing trading ideas, where 40 percent of users are between the ages of 18 and 34, Snap has been the most talked-about stock for days.”
In contrast with long-term investments, putting your money in an initial public offering (IPO) is a huge gamble. Most of the upside return from IPO has gone to the well connected insiders and wealthy clients. Plus you cannot predict when the party is over to cash in on the profit. The game is stacked against small investors who often lose money betting on hyped IPO. Hopefully, these millennial investors learn well from Snap IPO.