Snap Inc. (NYSE: SNAP)’s IPO was valued at $3.4 billion after it floated 200 million shares priced at $17 apiece. The company’s total market value in the wake of the IPO currently stands at $24 billion, Snap Inc. has been leading in terms of innovation in the social media sector and has taken a very different approach than its predecessors and contemporaries. It doesn’t much seem to care for norms of holding hordes of user information online, but building a name that people recognise as different from the myriad social networks populating the information superhighway. The social media giant made a statement with the debut of the Snap Spectacles indicating that it was not risk-averse when attempt to differentiate its product. By signing a deal with Disney to produce several-minutes-long shows it’s intent to push television to the social network space as well as video content in general, an area both Alphabet Inc.’s (NASDAQ:GOOGL) YouTube and Facebook Inc.’s (NASDAQ:FB) video platform are eying as their next big play.
Snap Inc. is pricing itself at 60 times revenue, approximately double that of Facebook’s IPO valuation in 2012 which was about 27 times revenue. However, this may not be an indicator of future short term growth. Facebook’s stock price suffered in the short term post-2012 IPO but grew to 3.6 times its value and stands at over $137.42 a share today. Conversely, Twitter’s IPO showed promise at $69 a share in January 2014 but shrunk by 87% over the next 3 years and now stands at $15.79 a share as it suffered from a consistent brain-drain, failure to sizably grow Monthly Active Users (MAUs) during this period.
Either could still happen to Snapchat given its current market position. It’s difficult enough as it is with Facebook copying every move they make (most recently updating WhatsApp with the “Status” function) but millennials are known to be fickle. In this game, the average monthly active users need to grow on an annual basis, otherwise, the game is over. Facebook has 1.86 billion monthly active users. Snapchat has 301 million MAUs as of 2016*. Snap Inc. is also not taken as seriously as Facebook while is seen more as a business platform as well as a brand management option which tends to be seen more as a hub for users of all ages across the world to engage with each other; Snap’s strengths lie directly with the millennial crowd, something that one could say limits its utility and therefore, monetization potential.
Investors should also note that though Snap Inc.’s revenue grew by 600% in 2016 ($404 million), it’s still not a profitable business as it hemorrhaged $515 million last year.
Snap Inc.’s IPO is set to have the highest valuation since Facebook’s five years ago. Fortune predicts that it will have a P/E ratio of 59, significantly lower than Facebook which stands at 39.56. An investor in Snap should also note that the stock he controls will have no voting rights, giving Evan Spiegel and co-founder Robert Murphy full control over the company. This is a relatively unprecedented move for a publicly traded company in the US and given how Snap stock performs, one it should be easy to see how investors deal with the relative lack of control they have on their investment in Snap Inc.