Should You Invest in the Snapchat IPO?

What is the Snapchat IPO?

Snap Inc [NYSE:SNAP] is the company behind social media heavyweight Snapchat. After extraordinary growth over the last few years, Snap Inc has decided to go public. It’s now joining the likes of Facebook Inc. [NASDAQ:FB] and Twitter Inc. [NYSE:TWTR] as another social media platform to offer up shares to investors.

What’s the deal with the Snap Inc. IPO?

Snap Inc. has now come out and let the market know that the initial public offering (IPO) will be at US$17 per share. This puts an initial valuation on the company at US$24 billion. Not bad for a company only founded five and a half years ago.

You will see the IPO hitting headlines around the world. You will see a lot of excitement and hype building up about it. You will hear people calling it the ‘next Facebook’. But the question that everyone is asking me right now is, ‘Should I invest in the Snapchat IPO?’

Well, you can decide for yourself. But in my view this could be an IPO built on hype and excitement, which long term might play out more like Twitter than Facebook.

What now for the Snapchat IPO?

Let me give you some perspective before you decide one way or the other about the Snapchat IPO.

They are listing at US$17, market cap around $25 billion or so. Their monthly active user numbers, according to Statista, is around 301 million. In terms of daily active users, Snap has around 158 million.

The comparison people are using is that Snap could be the next Facebook. However, Facebook too once traded at $19, and had a similar market cap at around US$38 billion. This was back around August 2012, not long after they went public.

At that point Facebook already had 1 billion monthly active users. They also had around 584 million daily active users.

If the revenue model that Snap is looking to make money on is advertising, then this valuation appears to be high compared to Facebook. If they’re also looking to generate revenues from product sales (camera glasses, drones and other ‘smart’ devices) then in my view they’re still too highly valued, and battling too strong competition.

Sure, Snap could continue to grow. But they might be reaching a peak for daily active users. From Q3 to Q4 2016 Snap went from 153 million daily active users to 158 million daily active users, just 3% growth quarter on quarter.

The way I see it, Snap looks more like heading the way of Twitter than the way of Facebook.

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Sam Volkering,
Money Morning


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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