As the initial public offerings of Facebook (FB), Alibaba (BABA), Snap (SNAP), and Square (SQ) showed, big-buzz IPOs often turn into big disappointments – at least at first.

X After making their market debuts, each of those stocks headed south from their second week of trading.

Alibaba was the only one to launch a breakout soon after its IPO, but even the Chinese e-commerce giant went into a multi-year slump after a short-lived 20% gain.

It wasn’t until January of last year that Alibaba was able to launch a sustained upward climb, and it took Facebook and Square more than a year before they found their market legs and launched impressive runs.

Now after nearly a year of disappointing performance, Snap has jumped higher on a strong Q4 earnings report, just ahead of the first anniversary of the Snapchat parent’s March 2017 IPO.

The question now is, can Snap launch the type of run that Mark Zuckerberg’s Facebook has had?

Can Snap Follow Facebook?

In the three quarters leading up to Facebook’s May 2012 IPO, the social media giant was posting slowing earnings growth, with EPS gains slowing from 100% to 25% to 9%. Facebook’s growth continued to slow even after it went public, and the stock sank 54% over the next four months.

It wasn’t until July 2013 that Facebook’s stock bolted higher on a strong earnings report that showed the company was back on the fast-growth track.

While Snap’s post-IPO chart action is somewhat similar to Facebook’s early days, there are some key differences between the companies – and market conditions – to keep in mind.

First, Facebook has established a long track record of solid earnings growth, while Snap has yet to make a profit.

Snap’s bottom-line performance showed improvement in Q4 and user growth also impressed investors, but to make the kind of multi-year run that Facebook has made, Snap will need to start posting actual earnings.

Second, Facebook broke out in a strong market, which provides a strong tailwind that can lift stocks higher. Snap is currently facing a very different environment.

After several days of heavy selling pressure in the indexes and a breakdown of support for many leading stocks, the market uptrend rolled over into a correction.

So until we get a follow-through day to a launch a new uptrend, Snap – like all stocks – will face an uphill battle to climb higher.

You can see that in the chart action in recent days for Facebook, Alibaba and Square, as well as Snap. Each of these stock has come under selling pressure as market watchers wait to see how severe the current correction will be.

You May Also Like:

How Can You Handle This Market? Start With These 3 Steps

A Tale Of 4 IPOs: Facebook, Alibaba, Snap And Square




Please enter your comment!
Please enter your name here