Snapchat’s parent company has filed for an IPO. Snap is planning to go public on the New York Stock Exchange in March 2017. Snapchat is a disappearing photo app and is owned by Snap Inc, a US bases social media company. Snapchat has over 158 million daily active users, as of December 31, 2016. Now, if investors are lured in and buy into the $25 billion valuations which the company founders have sought for, it will be the costliest tech IPO to ever come to market. If the aim to get such a big amount is successful, it will leave behind other giants like Facebook and Google by a big margin. The company deserves to seek for such a price, as its whopping sales growth rate can attract a lot of eye balls. From $59 million revenue in 2015 to more than $400 million in 2016 Snapchat came a long way in such a short time, but last year it also lost $514 million. According to the filing, Snap is thinking about using the proceeds from the offering for general corporate purposes, including acquisitions. Snap will spend $ 2 billion with Alphabet to use its Google cloud platform, as Snachat relies heavily on it. Snapchat also competes with Google, and other tech majors like Facebook nd Instagram, which themselves are taking the shine off this app. Here are other 5 things you should know about the IPO filing:
a. Snapchat has the stakeholder unfriendly approach, that is a corporate governance structure which makes the company CEO Evan Speigel, the absolute controller. Additionally, Snap has said that it will not pay cash dividends in any case.
b. The Snap stock will be highly expensive. While the founders have sought a $25 billion in valuation, there has been no word on the price of the Snap stock when the trading will start. But even within those parameters, the amount in itself is so huge that the stocks will have to be high.
c. Snap is asking for a valuation which is more than 60 times the company’s actual revenue, while Facebook’s cost-to-sales ratio is a little more than 12 times. The other difference being Facebook, though slower now, has a much bigger profit number. Similarly, Twitter, which went public in 2013, sought a $14.2 billion in valuation even though it was making losses. Yet, it was much less than that of Snapchat and its red-inked loss in revenue. Facebook, however, made a lot of profit before the IPO filing but its shares struggles, but Twitter got the opposite treatment.
d. The larger issue is that the company will have to justify the high valuation with growth. The revenue has risen exponentially, but the truth also is there is a decline in the growth in the number of users. Additionally, the growth in Snapchat has recently been seen in countries other than the US and Europe, though they still contribute to most of the revenue.
e. With the increase in expenditures, Snapchat has said that revenue growth may not be seen for a long time now. So, will the investors bet on future profits?