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Oh, Snap!

3/6/2017
By Charles Payne, CEO & Principal Analyst

Oh, Snap, the IPO of Snap Inc. (SNAP), was up on the second day of trading on Friday. And now, shareholders are hopeful the amazing debut doesn’t vanish.  It’s too early to see where the company and stock might be a year from now, but there are cautionary tales from hot tech IPOs worth revisiting.

Tech Bubble Fever: the Beginning

TheGlobe.com (TGLO) saw a couple of college undergrads take the concept of chat rooms public, and that set the world on fire.  On November 13, 1998, the Globe’s initial price was offered at $9.00 per share and it began trading and rallied all the way to $97.00 before “settling” at $63.00 for a record one-day gain of 606%.  In many ways, this took the tech IPO market into overdrive and got a number of Americans thinking they would “play” the market and retire at age 40.

One of the founders was known for hitting the town in leather pants with his model girlfriend.  It’s not known what happened to the pants or the girl as the stock proceeded to eventually work its way to $0.10 a share.

Tech Bubble Pops (Reality Struck)

If the Globe took the tech bubble into overdrive, it was World Online (WOL) that erected its brick wall.  The Dutch tech company was billed as the America Online for Europe and Africa. 

It was successful with growing subscribers, but there was the issue of profits; however, that’s not where the deathblow came from.  Goldman Sachs (GS) was the lead underwriter and the IPO party was graced by Sarah, Duchess of York, Christopher Reeve, and Joe Cocker.

There was a hell of a party that day on March 17, 2000, as the stock was oversubscribed 21 times. When trading began, the shares skyrocketed; by the closing bell, they were unchanged at €43 but still sported a €12.0 billion valuation.

In the midst of the party, someone asked CEO Nina Brink what she thought of the action and what she was going to do with her newfound wealth.  That’s when she admitted to having already sold her entire stake, ten percent of the entire company in a private transaction for only €6. 

Needless to say, the stock began going into freefall. A week later, the S&P hit an all-time high and began to implode. I say it was a sobering wake-up call; everyone had been suckered and the game was over.

I am not saying Snap Inc. is either theGlobe.com or World Online, but now all the unicorns are going to come public and some will be dogs looking for suckers to finish the ‘Greater Fool Theory’ so be careful.  What really bothers me is all the millennials that would never think of owning General Mills (GIS) or any other boring non-tech name may pile IPOs into a bunch of companies with no earnings.

Ironically, maybe buying them all is the only way to get the winner, but most people are going to pick a couple and I hope they go on more than the cool factor.

Meanwhile, SNAP has sucked some of the air out of the bull market with regard to volume (there is a limited amount of money trading each session and bringing up questions of overall valuations. I am still confident in this rally long-term and welcome test along the way.

Charles Payne
Wall Street Strategies


 

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