10 Mar 2017 Ariel Investments Feb 28, 2017 Monthly Commentary ( Portfolio )

Another type of event that heightens our vigilance is the ebullient IPO. Recently, Snapchat’s parent Snap, Inc. (SNAP) qualified. Snap began trading on Thursday, March 2, with the Journal headline reading “Snapchat Shares Surge 44% in Market Debut. The paper noted that at $34 billion, Snap, Inc. was worth more on its first day than Marriott Intl (MAR) and Target Corp. (TGT). To that short list we would add: cereal king Kellogg Co. (K); airlines United Continental (UAL) and American Airlines (AAL); and fast-food giant YUM Brands (YUM). When investors hurry to get shares that leap by almost half in a day, we have to wonder if greed is not starting to set in. After all, as the article notes, Snap Inc. “had a net loss of more than $500 million last year.” While Snap may indeed live up to today’s lofty expectations, we can’t forget that for every Facebook (FB) success, there is a Twitter (TWTR) disappointment and a MySpace debacle.