Snapchat officially filed for its IPO last Thursday (2/9/2017) and is expected to release its first initial public offering of shares sometime next month under the ticker symbol SNAP. Given its popularity in the millennial community, I decided to do a Snapchat Stock Valuation. Snap, a “camera company” according to its filing, said it plans to raise up to $3 billion, which may be a placeholder figure. Stockholders who buy into the offering will not have any voting rights.
Snapchat Stock Valuation
With its IPO, which is expected to launch next month, Snap is targeting a valuation between $20 billion and $25 billion from Wall Street investors. This basically means they want to raise funds given their cash burn. It also gives early investors a chance to cash out. However, many of them probably have to wait 6 months for the lockup period. That makes the photo-sharing app pretty pricey. At its target valuation, investors would be paying some 62 times trailing sales for Snap. That’s compared to five times the sales for Twitter, and 14 times for Facebook. And that’s optimistic for a company that’s not picking up new users like it used to.
The Growth
Snapchat’s growth slowed by more than 80 percent at the end of 2016, as Facebook’s Instagram added the Instagram Stories feature to compete with Snapchat Stories. The 5-year-old Snap posted a net loss of $514.6 million last year and a loss of $372.9 million the year before.
Now Snap faces an interesting challenge. How can it find millions of new users and still appeal to the ones who are using the platform to escape the cross-generational crowd?
Snap is sexy to advertisers because it gets higher levels of engagement from millennial consumers than YouTube, Twitter or Facebook do. But without broad user growth, can Snap achieve the sales volume it would need to support a $20 billion valuation?
The No-Vote Shares
Snap’s IPO will consist totally of nonvoting shares, in a move that would effectively insulate the company against influence from activist investors and maintain a board that is dominated by insiders. Institutional investors – hedge funds and other major market movers – aren’t wild about it, either. The Council of Institutional Investors has written a letter to Snap’s founders urging them to reconsider.
Snap’s move follows a recent pattern among tech companies seeking to hold on to corporate control, even while issuing shares. But this is more sweeping than what’s been done by its tech peers. Facebook and Google’s parent Alphabet have issued some special shares that come without voting rights.
The IPO Effect
Of course, these reservations might all be forgotten when Snap debuts on Wall Street next month. There hasn’t been a tech IPO in months, and this one will likely be the biggest since Twitter listed in 2013. Investors are primed for this.
Will Snap fall like previously over-hyped IPOs have? The recent IPO hype train has mirrored the effects of flipping houses. Build a start-up, go IPO, make millions, leave. Rinse and Repeat.
GoPro, Yelp, Twitter, and Fitbit have all dropped significantly after their IPO debuts. Snap maybe another stock to add to the short watchlist.
Want to Participate?
Snap, with its current hype, may be an oversubscribed IPO. Based on the Snapchat Stock Valuation, the shares are hot. Although, probably not wise. If your brokerage is able to sell shares, you may be limited. With that said, Loyal3 and TD Ameritrade offer access to participate in IPOs. Eligibility is determined based on certain account restrictions.