The Snap Inc. (NYSE: SNAP) IPO didn't impress me at all.
But that didn't stop the new stock from rocketing above $29 during its first week as a public company.
Speculators' intense thirst for SNAP shares wasn't surprising. After all, we're talking about a household name tech stock with a product hardwired into millennials across the country. It's not often that a company with such widespread brand recognition makes its debut on the NYSE.
Sure, a lot of IPOs are hot right out of the gate. If these new stocks are marketed well, they can put on a quite a show. SNAP shares enjoyed plenty of positive media coverage. The stock also held the line for its first two months on the market.
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I even offered up a snide tweet as SNAP continued to consolidate its initial pop in the mid-$20s...
Here we are not halfway through July and SNAP is already starting to fall apart. The stock cratered nearly 8% yesterday. It's now trading below $16 -- just an Abe Lincoln shy of my ridiculous "price target".
Yes, I had a sneaking suspicion that SNAP's gains wouldn't stick. But I honestly didn't expect the stock to come crashing down so soon (and no, I'm not actually interested in buying this dumpster fire at $11. I might be crazy -- but I'm not stupid).
But if you forced me to choose between buying shares of SNAP and fellow IPO dud Blue Apron Holdings (NYSE: APRN), I'd pick SNAP any day of the week. At least SNAP has displayed something resembling a business plan, even if the company will have to fight off advances from Facebook's Instagram encroachment into its most popular features.
On the other hand, the Blue Apron story is falling apart just a couple of weeks after hitting the market. In fact, one research firm just slapped a $2 price target on the stock, citing lack of positive cash flow and poor cost structure, and sales growth that's mostly dependent on promotional discounts.
Remember, the company initially planned to debut on the New York Stock Exchange at a hefty $3 billion valuation. That comes out to more than $15 per share. But Amazon's $14 billion bid to buy Whole Foods put an end to this pipe dream. When one of the most innovative companies in the world instantly became a potential Blue Apron competitor, institutional buyers suddenly weren't so gung-ho over APRN stock.
Due to soft demand, Blue Apron cut its IPO range to $10 – $11. The stock debuted just a couple of weeks ago right at $10. It never closed above its opening bid. Yesterday, it fell another 12%, to $7.14 per share. And now it must contend with an ugly $2 price target pinned on its backside. Brutal.
Investors have spoken. They don't want Wall Street's overpriced, overhyped IPOs. Instead, the smart folks are sticking with what works: big boys that are crushing the competition and keeping companies like Snap and Blue Apron at bay. I'm talking about Facebook and Amazon, of course.
Facebook just booked its third consecutive day of gains to push the stock back near its all-time highs. Amazon's also back from summer vacation. Shares are inching back toward $1,000 this week.
Meanwhile, SNAP and APRN are officially duds, according to Business Insider. They're now below their respective IPO price and threatening go into freefall.
The choice is clear. Despite the summer dip we've seen in the mega-cap tech names, these stocks are clearly a better choice than the two IPO failures we've highlighted this morning. Don't try to buy the dip. These new stocks aren't value plays. Not yet. Maybe not ever...
This article originally appeared on Daily Reckoning.