Snap’s IPO is lunacy, but it could be crazy good | Commentary

It’s hard to predict which controversial, overvalued tech IPO candidate will prove to be a wise investment and which controversial, overvalued tech IPO candidate will be a dud.

Let’s say this up front: Buying shares in Snap’s IPO this week is an act of lunacy.

It’s nuts to buy stock of a company with just a two-year track record of generating revenue, a loss of $1.27 for each dollar of 2016 sales, a valuation higher than just about every other big technology company and sole decision-making power in the hands of two 20-somethings.

But here’s the tricky part about this lunacy: No matter the wisdom of prognostications, it’s hard to predict which controversial, overvalued tech IPO candidate will prove to be a wise investment and which controversial, overvalued tech IPO candidate will be a dud. At this stage of life, it is nearly impossible to tell one crazy from another. 

In the run-up to initial public offerings of many prominent internet companies, people tend to raise legitimate questions about slowing user growth, the risk of competition, bad business models, corporate democracy problems or irrational valuations. That’s true of just about every successful tech company that went public in recent years — and for nearly every one that turned out to be unsuccessful.

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I’ll administer a quiz to illustrate this point. Guess which prominent tech companies were the subjects of these skeptical quotes as they neared their IPOs: 

1) “They were overconfident — not only in the number of shares, but also the price people would be willing to pay.”

2) “[The company’s] value is probably much less than most investors seem to think. … I’m sitting this one out.”

3) “This initial public offering has become another example of a company getting a pass on fundamentals such as earnings and quality of revenue.” 

4) “We are left wondering whether…

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