Snapchat went public on Thursday under the name Snap Inc. and debuted with a great IPO of $24 per share more than the company’s estimation. This share price is 41 percent higher than the IPO of $17 set by the company, effectively meaning the business could have made about a billion dollars more had it set the price at $24 at the opening.
Although it can’t match the levels of Facebook and Google regarding advertising revenue, it can bring some parity with hardware sales which it got into a few months ago with the release of “Spectacles” which coincided with changing Snapchat to Snap and announcing itself as a camera company. The product got great reviews and because of a crafty marketing strategy and limited availability “Spectacles” was highly in demand.
Snapchat says it has 158 million service users a day who create 2.5bn “snaps” between them. However, the user base is way below that of Facebook which has over 1 billion users on its platform.
The company is especially patronized by the teens because of its more than popular messaging app Snapchat. However, the question that investors are most likely to ask is: Will the company be able to reach out beyond its youthful user base to a huge global audience?
Clement Thibault, a senior analyst with Investing.com, believes that “Snap Inc.’s valuation at $17 a share, or $24 billion as a business, is a stretch at best – and most likely one of the most overvalued IPOs in recent years.”
The company’s strong product vision and popularity with the young users are the main reasons for Investor demand as of now. It is this potential that has softened the impact of Snapchat’s decline in terms of growth and mounting losses. However, the potential has to be converted into big profits soon, or else Snap will find itself alongside Twitter with a massive user base but negligible profit and unattractive to talent.
“While the company’s optimism for its potential growth makes sense given the trajectory of previous social media darlings, there’s reason for caution,” said Jessica Liu at Forrester Research.
“First, Facebook’s success is an anomaly. Second, while Snapchat has a grasp on mobile video, its TV-like revenue pursuit is new and untested. Snapchat has much room for improvement in the areas of user growth and delivering data and measurement to advertisers in order to live up to its high expectations,” she added.
“The stock market conditions are good, there’s cash available on the sidelines, so the market will welcome an offering like this,” said Josef Schuster, founder of IPOX Schuster, the index provider. “Investors are optimistic about the company’s revenue growth, so while there’s some uncertainty, they still want this stock in their portfolio.”
With growth slowing down to 48% year-on-year and losses increasing to $ 514 million from $373 million a year back in spite of the revenue increasing to $404.5 million in 2016 from the $58.7 million figure in 2015, Snap will have to get investor priorities bang on target if it is to continue to command a high share value.
Mark Zuckerberg’s buyout offer of $3 billion in 2013 was declined by Snapchat co-founders Evan Spiegel and Bobby Murphy who have become paper billionaires many times over and are now ranked among the top notch billionaires in the tech industry after going public.
The main beneficiaries of this windfall are, of course, Spiegel and Murphy with their shares worth billions now in the NYSE, plus a few other executives and investment funds who have made some serious money, as well.
It is the largest public opening since the IPO of Alibaba, the Chinese e-commerce company, in 2014.
This sale has taken Snap way ahead of Twitter which is valued at $11 billion. However, it would do well not to meet the same fate of Twitter which proved to be an anti-climax for investors after all the build-up before its own IPO.