Last week, a 26-year-old Stanford dropout named Evan Spiegel became richer than Donald Trump and twice as rich as Oprah. Thanks to the spectacular public debut of Snap, the company he co-founded, he's now worth around $6-billion (U.S.). And Snap – whose market value is now around $30-billion – is, for now, the hottest stock in the world.
Snap owns Snapchat, which is basically a way to let postliterate young adults communicate with their friends by exchanging humorously doctored photos. They don't like Facebook. They think it's for their parents.
Snapchat has been hailed as a phenomenal advance in social media. But really, it's a story about market hype and speculative mania, and about collusion by a rapturous media bedazzled by the latest hot tech story.
For subscribers: Don't let Snap fool you. IPOs aren't must buys
"A tech IPO of this sort has nothing to do with the business, nothing," Philippe Collard, who gives advice to tech startups, told Reuters. "It has everything to do with a financial transaction where you create artificial demand."
Snapchat started as a sexting app called Picaboo, which was popular with high-school girls because it allowed them to send naughty messages to each other that would quickly vaporize. Now it's used for photos, which you can manipulate in funny ways by adding funny dog ears and noses to people's faces, or making them vomit rainbows from their mouths.
Snapchat makes most of its money from advertisers such as Taco Bell, which did a promotion that allowed Snapchat users to turn their faces into tacos. Who says Americans have lost their innovative drive?
Mr. Spiegel, who drives a Ferrari and dates supermodels, explains that Snapchat is a way for young adults to express their ever-shifting identities, without the oppressive permanence of Facebook. "[There] isn't pressure to feel pretty or perfect. Self-expression isn't a contest, it's not about how well you can express yourself, it's about being able to communicate how you feel and doing that in the moment." Wherever he goes, people hang on his every word.
The Snap IPO was the first tech offering this year. It was deliberately rationed to create high demand. Only a fraction of the shares were offered to the public, and the offering was heavily oversubscribed. On the first day of trading last week, the share value shot up by 44 per cent. Such was the demand that the company decided it didn't have to give its shareholders any voting rights at all. But the buyers didn't care. The offering was especially popular among millennials, many of whom were probably making their first forays into the stock market.
What they got for their money is a company with remarkably slender revenues ($405-million last year) and hefty losses ($515 million). To succeed, it will have to achieve phenomenal growth in a market dominated by large and formidable competitors, including Instagram and Facebook. In the fine print, the company discloses that "we may never achieve or maintain profitability." But who reads the fine print?
The investment bankers that underwrote the stock made out just fine. They collected millions. The financial media were all lollipops and sunshine. Meanwhile, the Trump updraft has pushed the markets to giddy new heights. Can anyone here spell "bubble"?
No one bothered to point out the greatest danger of all to Snapchat's fortunes: the fickle tastes of 20-year-olds. Soon Snapchat's customers will be 30, and in pursuit of other thrills, and the new generation of 20-somethings will think it isn't cool. With luck, by then Mr. Spiegel will have sold his company to Facebook.
In the olden days, capitalism was about making stuff that made people's lives demonstrably better. Then the disruptors of the information age came along and offered us what seem like miracles – instant communication and all the knowledge of the world at your fingertips and on your phone. But now it feels as if we've reached the late stage of capitalist exhaustion.
Instead of the Wright brothers tinkering around in their garage to unlock the secrets of manned flight, we have our best and brightest minds devoted to encouraging 20-somethings to turn their selfies into tacos and happy dogs that just … disappear. And everyone goes nuts.
As somebody once said, there's one born every minute.