The forthcoming IPO for Snap, the parent company of Snapchat, has received some mixed press over the last few weeks. The shares will officially start trading on Thursday and after initially reducing its expected pricing arrange to between $14 and $16, sources close to the company have revealed the price will actually be $17. So, what does this say about this much awaited IPO, what can we expect when trading starts on Thursday?
Company raises $3.4 billion
The parent company will raise $3.4 billion with the sale of 200 million shares although, as has been mentioned in the press, the shares will have limited voting rights. This values the group as a whole at around $24 billion and it is believed that the IPO was 10 times oversubscribed. When you bear in mind that the IPO market in 2016 was negligible it is perhaps no surprise to see investors jumping aboard this latest technology bandwagon.
At this moment in time it is not totally clear how and when the company will move into profit although in reality it is a very similar situation to Facebook. Looking back, Facebook shares are now up by 250% since their initial launch after which they tanked for a variety of reasons.
Daily activity growth slowing
It is a little bit surprising to hear that the IPO was allegedly 10 times oversubscribed and, by the company’s own admission, we learn that daily activity user growth is slowing. To balance this particular argument, the percentage of active members (against the total membership) for Snapchat compares favourably to other social media channels. However, technology-based companies in their early days should in theory be showing significant user activity growth?
As we mentioned in some of our earlier articles, there is a growing concern that social media companies are quite literally morphing each other which can lead to them losing their identity with users. We have seen a whole array of social media companies “copying” services available with competing sites which are nowhere near their original core activities.
Moving into profit
At this moment in time it is difficult to say how and when Snapchat will move into profit because while membership continues to grow where are the long-term income streams? Advertising will obviously be the main income in the future but quite how they will encourage users to click on adverts remains to be seen. There is also the fact that many social media start-ups are here today and gone tomorrow although in reality with a $20 billion market cap Snapchat has the finances and the strength to make changes if needed.
Many experts are putting great significance on the Snap IPO on Thursday amid suggestions it could dictate the direction of the IPO market in 2017. We can only hope we don’t see the same technical difficulties which Facebook experienced on day one leading to a significant drop in the share price. The next few days could be very interesting for the US stock market and show whether there is indeed underlying investor demand for technology shares such as Snap/Snapchat.