Daily Times

What should investors in Arabian Gulf markets make of Snap, the “camera company” that last week took Wall Street by storm with a multibillion-dollar initial public offering (IPO) that soared to a 44 percent premium on its first day of trading? The Snap listing is of interest not only because its Snapchat app has been enthusiastically embraced by social media addicts in the region, with the UAE and Saudi Arabia ranked among the fastest-growing markets for the product worldwide. Its youthful user profile – the majority are in the 18-34 age bracket – fits in perfectly with Gulf demographics. The California-based company, founded by tech entrepreneurs Evan Spiegel and Bobby Murphy, was so impressed by the potential of the regional markets, especially the UAE and Saudi Arabia, that it opened its Middle East HQ in Dubai’s Internet City late last year. Given this two-way affinity between the Arab market and the company, it looks pretty certain that Gulf investors would have been among the early investors who piled into Snap stock and enjoyed such a bumper short-term return. When the share register settles down enough to be analyzed, I would be amazed if there were not some regionally familiar names there, either in a private capacity or as big institutional money from the likes of sovereign wealth funds and family offices. So what happens to Snap shares going forward is of immediate interest in the Gulf, but it must be said the jury is still out as to future share price performance. The Wall Street professionals who brought Snap to market have a wealth of experience in pricing these things and they have definitely caught the wave in many respects. Snap combines technology, entrepreneurial skill and demographics in a way that gets the prospectus writers salivating.

Following Facebook or Twitter? There have been comparisons with the big trio of Apple, Google and Facebook as long-term growth stocks, and reminders that anybody who got into those IPOs at an early stage would have made their money back many times over by now. But early investors do not always get it right. Twitter shares also soared to a big early premium, but have since fallen back to earth with a bump. So the question is: Will Snap be like Facebook, or like Twitter? There are some persuasive reasons why it will be the latter. For each of the positives that made for such a first-day sensation on the New York Stock Exchange (NYSE), there is a sound counter-argument that it will eventually crash and burn. Facebook was profitable when it went public in 2012; Snap made a loss of $515 million last year. Facebook had already carved itself a dominant social media niche; in fact it virtually invented the concept. But there are fears that Snap’s appeal will be as short-lived as the bunny ears and rainbow vomit superimposed on the images its users share. Facebook and Google were able to quickly establish supremacy in the Internet advertising markets; Snap is already facing concerns about its ad growth amid fierce competition from rivals in the online media space, not least Google and Facebook themselves. There is one other big reason why investors should be cautious about Snap shares. Uniquely in modern IPOs, the founders and advisers have decided to sell shares to the public without voting rights. If anything goes wrong, shareholders have no leverage on the company. This breaks the fundamental rule of public equity investment, yet Snap has got away with it amid all the tech euphoria.

The search for Gulf unicorns With these reservations around Snap, it is no surprise that some pessimists are calling the IPO the top of the current equity boom market and are warning of a re-run of the dot-com bust of 2000. But let us assume all those fears are exaggerated and Snap goes on to become a Facebook-like success. That would be a major boost for investment markets and a positive encouragement to other small companies that are seeking to become “unicorns” – start-ups that grow to earn their backers a $1 billion valuation. Gulf markets would take heart from that. With all the regional interest in social media and e-commerce, many analysts believe it will not be long before the region finds its own unicorns, which could get IPOs back in fashion in the Gulf.