David from Fort Worth, Texas asks: Hi Mitch, I noticed there hasn’t been too much news about IPOs lately, but I also heard Snapchat was a blockbuster. I have two questions: do you think Snapchat is worth buying? And, are there other IPOs I should be on the lookout for?
Mitch’s Reply: Thanks for writing, David. Your question comes at an interesting time actually. I would have agreed with you completely about it being quiet on the IPO front lately, but that seemed to change quickly here in late April. The lull appears to have broken, as there could be 18 total IPOs this month. That would be the busiest IPO month since October of last year.
Let’s start with Snapchat, which is easily the biggest tech IPO of the year and will probably remain that way (unless Uber or Airbnb goes public, which I doubt will happen in 2017). As to whether you should buy Snapchat, I would first ask you these questions: Do you know what Snapchat does? Do you understand their platform, their mission as a company, and their vision of the future? And finally, do you understand how they make money?
If you cannot provide clear answers to each of those questions, then I would not invest. We investors should avoid investing in companies we do not understand, or ones where we are unsure what their product offerings are and how it can grow. Snap Inc. (ticker: SNAP) also set a questionable precedent by being the first and only IPO to only offer non-voting shares. This issuance implies that the founders retain voting rights while IPO shareholders do not. Accountability issues become murky in this scenario.
That all being said, maybe you do know all of the answers to my above questions about Snap Inc. and you feel confident about buying shares. And perhaps the company performs very well! Only time can tell. I would just make sure that for the investment assets you need for retirement and/or living purposes, you maintain a diversified portfolio with a long-term approach. Snap Inc. may fit into the technology portion of your portfolio, but just remember that there are nine other S&P 500 sectors to allocate towards.
As for other IPOs to be on the lookout for, there are quite a few that you may find interesting. Here are a few that were recently announced, though again I would recommend that before investing you perform your due diligence and understand the risks/downside associated with each company.
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