Published: Thu 16th February 2017
Read Time: 4 minutes
Snapchat Files For An IPO – What To Expect?
It is no secret that Snapchat, or newly renamed to Snap, is losing money over the years. Only last year did they announce a net loss of $514 million, despite the fact that their revenue is ever-so increasing – posting a $350 million increase in revenue in 2016. This was mainly due to the implementation of adverts. However, Snap’s growth is slowing down, with a consumer base increase of 63% in the first half of 2016, but only a 51% increase in users in the second half of the year. Controversially, this may have been due to Zuckerberg’s launch of Instagram Stories. Snapchat officially announced they are filing for an IPO (we can now buy their stocks – they are going public) and chose Morgan Stanley and Goldman Sachs Inc. to lead the project.
The Most Expensive Tech IPO
This disruptive application founded in 2011 by Spiegel, Murphy and Brown was lately valued at $18.5 billion. If investor’s bite into that price, it will be more expensive than the Google, Facebook, and Alibaba IPO’s – making them the most expensive Tech IPO ever. Moreover, Snap has still not posted profit, and it may be noted controversial that Snap’s IPO is valued higher than Facebook or even Google – since its range of services is much narrower. To add to this, Facebook had posted a $1 billion profit in the year prior to going public – a stark contrast.
Are Investors Going To Value Snap At $18.5 Billion?
Snapchat was officially valued at $16 billion in 2015 and since that point, they have increased their sales by 600%. Therefore, statically speaking, it may make sense that their IPO is significantly more expensive. On the contrary, Snap has a finite range of consumers, resulting in a slowdown in growth. In addition to that, they are competing with tech giants led by Zuckerberg, who continually evolve and expand their service to beat other applications. For instance: Facebook Live to beat Periscope, Instagram Stories to beat Snapchat, Facebook react, as well as video view count trying to beat YouTube, and Facebook tried to put effects on people’s faces to beat Snap’s revolutionary accomplishment. Moreover, Snap have signed a contract with Google, in which they promise to pay $322 million over the next five years – in return for Google to host their application. We must also note that their revenue last year was of $404 million. Finally, Snap’s revenue is hugely based on their implementation of adverts, which statistics suggest are less efficient than Facebook ads, or YouTube ads – which might also lead to some turmoil.
Looking On The Bright Side
Even after stating all of that, Snapchat still has a broad horizon of expansion – being the first application to implement video chat, and having further plans of expanding that feature. Additionally, Snapchat had made a smart choice by refusing Facebook’s takeover proposal of $3 billion in 2013, as they might now be worth $18.5 billion.
There are investors that are willing to value them at $18.5 billion, and if that is true, their stock price will be around $15 per share. However, due to high competition, a narrow revenue stream and difficulty to expand within Asia, the market may not be very stable – and every investment may therefore be quite risky.