Making a spectacular debut, shares of Snap Inc (SNAP Quick QuoteSNAP - Free Report) surged 44% from its IPO price on its first day of trading.

Snap Inc., the parent company of Snapchat had priced its initial public offering at $17 per share, above the expected range of $14 to $16. Shares began trading at $24, reached high of $26.05 before closing a tad lower at $24.48.

Analysts observe that Snap’s IPO success can be attributed to the fact that the company chose to go public before investors stared perceiving it as overvalued. Also, that markets have been doing pretty good ever since President Trump took over the White House, has also worked in Snap Inc’s favor. Dow Jones recently breached the 21,000 mark milestone. Over the past three months, Dow Jones is up 9.6% while S&P 500 is up 8.7% and NASDAQ composite is up 11.5%.

However, Tech Crunch reports that these gains are only for “smaller group of institutional investors and high-net worth individuals who are on good terms with the banks.” Gains are relatively very less for other buyers who only had a chance to buy shares yesterday, added Tech Crunch.

Snap’s IPO has inevitably been compared to past blockbuster tech IPOs. Twitter Inc was off to a crackling debut with reports of 73% gain in the first day while Alibaba (BABA Quick QuoteBABA - Free Report) was up 38%. On the other hand, Facebook Inc just managed a 0.61% gain in its first trading day.

Since its IPO, which was a debacle of sorts, Facebook, which carries a Zacks Rank #3 (Hold) has come a long way.  You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

In the past five years, Facebook’s shares have registered growth of 260.26% compared with the Zacks Internet Services industry’s gain of 153.47%.

Snap has offered 200 million Class A shares,which carry no voting rights.  This is because the company does not intend to dilute its power to make decisions. Snap will have a three tier share structure and founders Evan Spigel and Bobby Murphy will have the maximum voting rights through the ownership of Class C shares, which carry 10 votes per share. Class B shares carry one vote per share.

What does the Future Hold?

Snapchat, a relatively new entrant in the social media space, has become very popular among teens and millennials primarily because of its “ephemerality”. Photos/videos and text sent to friends via Snapchat disappear after sometime. Reportedly, Snapchat has over 158 million daily active users.

Such high daily activity is extremely attractive for advertisers. Snapchat has been offering some serious competition to other social media networks like Facebook and Twitter in terms of attracting teenagers/young adults to its platform. Notably, this particular group of the demography, teenagers, is most attractive to social media companies for the ad dollars they bring in. 

In fact, Facebook and its subsidiary platforms like Instagram have started to emulate Snapchat features to boost user growth and engagement levels.

Facebook, Inc. Price

Facebook, Inc. Price | Facebook, Inc. Quote

However, there are many analysts who believe that Snapchat might not be able to lure more investors. Some analysts claim that this might be due to the fact that interest in social media stock continues to ebb. Since Snapchat has just one source of revenues i.e., advertising, which only began in Oct 2016, it may be a concern for investors. Also, it just attracts a particular segment of the demography.

Analysts argue that teens are inclined to sudden changes in preferences. Media reports have quoted Snap “admitting” that increasing competition from big players (read Facebook), which have better resources, is a big threat as they can easily lure users to their platform.

Snap’s financials are also something that might deflect interested investors, opine some analysts. The company’s revenues are growing but losses are ballooning at the same time. Reportedly, in 2016, Snap’s revenues of $404.5 million, were nearly six times higher than 2015 revenues but net loss for the year increased 38% to $514.6 million. Notably, Snap’s valuation is over 60 times its revenues. Also, user growth is decelerating as competition from Instagram heats up.

An analyst was quoted by media reports saying “It is significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity. Significant ongoing dilution from share-based compensation will likely represent an additional negative consideration for the stock."

He further added, "Investors will also be exposed to what appears to be a sub-optimal corporate structure operated by a senior management team lacking experience transforming a successful new product into a successful company."

However, it seems that Snapchat has taken due note of all these. At the Morgan Stanley conference held a couple of months back, CEO Spiegel was quoted by media reports as saying that 50% of its new user base now comprises users over the age of 25. Plus, Snapchat, in order to diversify its revenue base, has started selling Snapchat spectacles worth $130. 

It remains a wait and see story as to what the future holds for Snapchat.

Want to learn more about the Snapchat IPO? Check out our podcast with an IPO expert to learn more about the company, its prospects, and what investors should think of SNAP stock as it navigates the world of publicly-traded companies. Listen below!

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>