The popular phone app Snapchat plans to release it's own IPO (initial public offering) stock, and has caused a stir on Wall Street an...
The popular phone app Snapchat plans to release it's own IPO (initial public offering) stock, and has caused a stir on Wall Street and mixed emotions among investors. Fortune wrote that "Snapchat's likely the most expensive big tech IPO ever", and Wall Street Journal said "a shadow looms over" it's IPO. With an evaluation of $19.5 Billion to $22.5 Billion, (NYSE:SNAP) , or Snap Inc., would be the largest U.S.-listed tech offering since Alibaba Group in 2014.
The valuation range equates to $14 to $16 a share, and has some investors enthusiastic about the possible return. Chris Lau of InvestorsPlace said SNAP's IPO "will be a bust, but you should buy it anyway" for the possible lump some return on day one. Lau said the SNAP stock may have a "pop" on day one, a promising sign for investors looking to turn a quick profit. Yet, for the most part, investors are turning away from the idea of investing in Snapchat's new IPO, pointing to it's bleeding resources and slow user growth. Snapchat had 158 million users in the fourth quarter compared to Twitters 319 million, yet Snapchat evaluates their stock at over double the price of Twitter's. Flatline growth is another concern of investors, as Snapchat saw just a five million increase in users from the previous quarter. In comparison, Facebook had 1.23 billion daily users in the same quarter, and their stock (FB) started at $38 a share in 2012, and is now at $133 five years later. Yet, as investors point out, unlike Facebook, the Snap stock faces the reality of slow user growth, and performance numbers not even close to that of Facebook, despite SNAP's stock being astronomically high in price.
However, Snapchat is optimistic about the longevity of the stock and told investors "size doesn't matter".
"One of the challenges that we've encountered over time is to explain to people why bigger isn't better," Evan Spiegel, Snap's CEO and cofounder, said in a new presentation to sell investors on its upcoming IPO.
"When we started our business, there was sort of this idea that on the Internet, the more friends that you have, the more followers you have, the better your life will be," Spiegel continued. "What we identified with Snapchat was people were really missing the intimacy of communication."
Spiegel stopped short of mentioning social media rivals Facebook and Twitter, he still made his message clear: a social network can be engaging even if you only use it to follow a few users rather than a couple thousands.
Snap's Chief strategy officer, Imran Khan, highlighted Snapchat's accessible and frequent use by it's users.
"Our users come to Snapchat almost every waking hour," Khan said in the presentation. "The entire nature of our product is that it's active, not passive."
The passive nature may be a hint at Facebook and Twitter's ever growing lack of a fresh, new look at social media. The idea has some users turned off from Twitter and Facebook, and Khan's comparison to Snapchat being active and not passive likely means the SNAP IPO has a long life ahead of it. Snap executives repeatedly drove this point home with investors, pointing at their users demographics: users check Snapchat 18 times a day on average and spend 25-30 minutes in the app. More importantly, most of these users are in the coveted age demographics of 18-34.
|Rather than focusing on user growth, Snapchat executives highlighted on user engagement in it's presentation to investors.|
"We wanted to make a place where you feel comfortable talking to the seven most important people because those are the people you talk to all the time," Spiegel says. "That focus is what has driven a lot of the frequency of people using our service and the time they spend."
Senior tech writer for CNN, Seth Fiegerman, said that "By stressing user engagement instead of user growth, Snap may just be able to avoid Twitter's biggest pitfall: the tough comparison to Facebook's massive audience."
|SNAP Inc. used the presentation to focus on how important their user engagement is in key age demographic ranges.|
Snapchat will be featuring the presentation video in it's "Snap Roadshow", during which executives travel to important investment cities to rally up support and demand for it's IPO. An IPO roadshow typically lasts about two weeks, suggesting that Snap will go public in March.