Currently valued at around $25 billion the company behind Snapchat, Snap Inc., is set to file an IPO towards the end of next week. This means that the company is likely to look to float on the stock market in March after an aggressive marketing campaign which will see company leaders chat with potential investors in the institutional market. So what do we know about Snapchat and the company behind the massively popular communications app?
Snap Inc. has been ready to go for some time
Snap, the parent company of Snapchat, actually filed a private IPO with the Securities and Exchange Commission (SEC) towards the end of 2016. This was the first step towards a public offering and we should see a glimpse of the company’s financials when the IPO is confirmed. While traditional timing would suggest a March float on the stock market this can obviously change due to market conditions.
The offering will be led by Morgan Stanley and Goldman Sachs and many believe this could be a test for the IPO market and the technology sector. If, as many expect, the IPO is successful then we will likely see a flurry of other companies coming to the fore. It is common knowledge that some of the best-known up-and-coming tech companies have been holding off from floating on the stock market due to recent conditions – not least the inauguration of the new president!
Is $25 billion a fair valuation?
There are actually hopes that interest in the IPO could push the theoretical value above $25 billion. At this moment in time the company has a massive reach amongst young and old and it is the future monetisation of this reach which is the key. In many ways the company could be seen as an early stage Facebook, reaching millions of people via social media, but yet to monetise customers. Quite how the company will monetise its audience remains to be seen but there are high hopes.
It will be interesting to see how the valuation progresses because only a few years ago Facebook tried to buy the company for $3 billion. At the time this was seen as undervaluing the company’s long-term potential and with a possible $25 billion valuation, the owners were right!
Is the tech boom returning?
Floating a company on the stock market with a valuation of $25 billion with limited if any profitability (we will see this when the books are made available) is high-risk. This risk is reflected in the potential monetisation of the growing audience in the future and could herald a return of the tech boom. The problem for technology companies is that they are only as good as their latest release so if a new company was to emerge tomorrow and “steal” their audience that would seriously dent their growth prospects.
Despite the fact that technology shares have received significant criticism in the financial press they are still much sought-after. Companies such Snapchat came from nowhere to grab a large portion of the relatively young market although many will be surprised to learn that last year more than half of the company’s new customers were over 25. The over 25’s have cash on the hip and a willingness to spend, spend, spend….