Why Co-Founder Evan Spiegel Didn't Sell Snap

Shares of Snap Inc SNAP have surged 31 percent from its IPO price of $17 on March 2. The stock now appears “fairly valued,” BTIG’s Richard Greenfield said in a report. The analyst will hold off issuing a higher rating unless co-founder and CEO Evan Spiegel can “continue to out-innovate peers.” Greenfield initiated coverage of the company with a Neutral rating.

Spiegel Refused To Sell Snap

Spiegel previously refused to sell the company, and when asked as to why, he replies, “I'm now convinced the fastest way to figure out if you are doing something truly important to you is to find someone who will offer you a bunch of money to part with it. The best thing is no matter whether or not you sell, you will learn something very valuable about yourself. If you sell, you know immediately it wasn't the right dream anyways and if you don't sell, you are probably on to something. Maybe you have the beginning of something meaningful.”

That meaningfulness, in Spiegel's opinion is the crux of Snapchat's model: one-to-one communication. While other social media platforms like Facebook Inc FB, Instagram, YouTube and Twitter Inc TWTR focus on one-to-many communication, “one-to-one communication is absolutely intrinsic to Snapchat,” BTIG explained.

“Snapchat, in Spiegel's view, is essentially the evolution of these two behaviors [communication and content consumption] married into one platform that is always with you on your mobile phone — snapping your friends is the new telephone and Stories/Discover are the new television,” the analyst wrote.

Lack Of Clarity Calls For Caution

Although Snapchat indicated its pace of product launches would accelerate in 2017, investors have “no idea what products are coming next,” whether the products would have people spending more time on the platform and how they could generate new revenue streams for the company, Greenfield mentioned.

“Snapchat's future and whether it proves to be a good investment from here depends on Spiegel's ability to continue to out-innovate peers,” the analyst concluded.

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