Why Snap Shares Soared on Its First Day Public

By Evan Niu, CFA Markets Fool.com

What happened

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Shares of Snapchat operator Snap (NYSE: SNAP) have soared on its first day of public trading, up by 46% relative to the $17 initial public offering (IPO) price as of 3:10 pm. EST.

So what

Snap is easily the biggest IPO in years, particularly within the nascent investable social media sector. There has been considerable hype and excitement around Snap's public debut, given the company's incredible popularity among teens and millennials alike.

Image source: Snap.

For much of the past few months, Snap has been drumming up investor interest with its IPO roadshow, which was critical in balancing investor demand with the optics of delivering a strong first-day pop, which IPOs are often judged by. The gains today show that Snap indeed did a good job balancing these forces.

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Now what

Jumping on the first day of public trading may be viewed as a success for the offering, but the real question for investors will be if Snap can live up to the lofty expectations currently being priced into the stock. Investors purchasing shares today know -- or at least should know -- that they will be receiving absolutely no voting rights, Snap is already on the hook for billions of dollars of cloud infrastructure spending, and the company is already seeing daily active user growth decelerate meaningfully. While first-day pops are common, what's also common is for the market to sober up following the post-IPO honeymoon as financial reality sets in. Snap will have to prove that it can grow its ad business and live up to the "camera company" identity that it is pitching, neither of which will be easy in the years ahead.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.