By Michael Jesi
Founders Evan Spiegel and Bobby Murphy started the company Snap Inc. in their Stanford University dorm room back in September 2011. Since then the Snapchat app has become such a huge success that they are now expecting to go public on the New York Stock Exchange in the coming days, speculators think it will debut March 2nd. Since Snapchat’s debut they have come a long way from simply sending pictures to friends to now being able to send video, use geo-tags, streaks with friends, setting stories, texting, snap spectacles, and much more. At the rate they are growing and with their current popularity, it seems like they will have a successful IPO. Yet, on the other hand, there are still some people that are skeptical about their potential success.
One thing that differentiates Snapchat from other tech giants when making their initial public offering is how Snap Inc. plans to maintain 100% control of their company. Not even company’s such as Google and Facebook have attempted this. For anyone wanting to invest in Snapchat this means that even if they hold stock, they will not get a say in how it is run.
Snapchat is expected to have 1,157,270,170 shares outstanding with a price per share set between $14 to $16. That would leave them with the public market capitalization between $16.2 billion and $18.5 billion. This could be a good investment because when looking at a lot of other social media and tech companies, Snapchat’s stock price per share has the potential to be much higher. We have seen this before with companies such as Facebook and Twitter during the time of their initial public offering.
Snapchat’s IPO could also have a large impact on the overall stock market. Not many tech companies have gone public this year. This is mostly due to the uncertainty of the recent presidential election of Donald Trump. With Snapchat going public, there is the potential to revitalize the tech portion of the stock market. Companies such as Airbnb and Uber, which have been putting off going public, could see Snapchat succeed giving them the confidence to follow in its footsteps. We saw a very similar situation occurred in the stock market during the time of Facebook’s IPO was released.
Although everything seems to be looking good for Snapchat so far, there are a few potential concerns to consider before investing. Recently Twitter has been having a rough time in the stock market, and some people believe Snapchat could suffer the same fate. One problem is that Snapchat’s projected sales for 2017 are roughly $1 billion, yet they are seeking a market value of $22 billion. This is a higher multiple than Facebook or Twitter was asking approaching their IPO.
People worry that Snapchat does not have a strong enough revenue stream. They also have high costs, such as labor cost, production, and outside service costs that have caused the company to lose money in past years. Although most recently they have been able to fix many of these issues to bring the cost down and revenue up. Snapchat makes most of its money through advertisements between user’s stories, news stories that users can subscribe to, filters, and sales of products such as the Snap Spectacles. It is speculated that this will even out in the long run.
Another problem is that Snapchats active user growth is beginning to slow down. It has nearly the same amount of daily users as Twitter which could be a potential red flag. Instagram has also come out with a new feature that is taking away users from Snapchat. Now through Instagram you can send pictures and set stories just like Snapchat.
Whenever a company decides to go public there are many different factors that need to be meticulously planned out to ensure success. So, what do you think, would you invest your hard earned money in Snapchat? Do you think Snapchat will continue to be successful in the future?