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The parent of Snapchat, Snap, plans to launch its initial public offering (IPO) on the New York Stock Exchange, according to a filing this week. That means stock trading in Snap will probably begin in early March.
It could be the largest tech IPO in recent years and the biggest since Facebook. The IPO is expected to be valued at $20 billion to $25 billion for this technology “mega-unicorn.”
The image messaging and multimedia mobile app Snapchat is best known for its short-lifespan snaps and stories. The app allows users to send 10-second covered with emojis and scribbles to friends, create a 24-hour collection about an event called a “story” and read news and entertainment stories on its Discover platform.
The projected IPO valuation makes Snap CEO Evan Spiegel and co-founders Bobby Murphy and Reggie Brown looks like geniuses. Mark Zuckerberg of Facebook (NASDAQ: FB) had offered $3 billion for the company, which was founded in 2011.
Snapchat Demographics
What exactly is the company all about? Should investors put money into the forthcoming IPO?
The key in my eyes for Snapchat is its young demographic base. Its biggest U.S. demographic is the 18- to 24-year-old group, followed by the 25 to 34 age bracket. In other words, these folks are millennials.
Overall, Snapchat has about 150 million users worldwide. The company has roughly half of its users overseas, with about 50 million of its users residing in Europe. It has also opened an office in Australia.
Advertisers absolutely love this young and engaged demographic. Snapchat users average about 25 minutes a day on the app.
Snap IPO: Revenues and Rebranding
However, Snap is still in the early stages of generating revenue. Sales are expected to rise over 150% this year to about one billion dollars. Having sales below one billion actually allowed Snap to file for its IPO confidentially (with few disclosures) with the SEC under a provision of the 2012 Jobs Act.
In fact, Snap has rebranded itself as a “camera company” instead of a social media company.
In late 2016, Snap launched its first hardware product – video sunglasses dubbed “Spectacles.” These sunglasses are being sold from roaming bright yellow vending machines, with one large eye, called Snapbots.
These eyeglasses, priced at about $130, will record what the wearer sees and upload that to the photo app.
Reports though are that we may have another case of combustible technology here. It seems that some spectacles melted from excessive heat while in the re-charging case for about 30 minutes.
Snap Stock Classes
So – despite the promise from Snap of even more gadgets – for potential IPO investors – Snap will be all about advertising revenues from the Snapchat app.
So far, advertisers have been pleased that they can insert their ads into users’ chats without seemingly being disruptive and causing complaints.
That is great news. But there is also something else to consider before jumping into Snap.
The fact is, that like Alphabet (NASDAQ: GOOG) and Facebook (NASDAQ: FB) before them, Snap will have several classes of stock.
Snap is actually planning to have three classes of stock, leaving control of the messaging app itself in the hands of the founders.
The founders will be owners of preferred shares (about 13.5% of the shares outstanding). The preferred shares will have 10 times more voting rights than the common stock. In addition, there will be one vote common shares and shares with absolutely no voting rights.
Outlook for Snap IPO
Personally, as a shareholder, I would like a say in any company I own. For instance – “forget hardware, stick to software!”
So I prefer stocks like Amazon.com (NASDAQ AMZN) that have just one class of stock despite being run by the founder.
I’m a bit worried too about the growing competition from established companies such as Facebook. Its Instagram division introduced a similar “stories” feature in August 2016 and is selling advertising in the daily slideshow of photos.
But as long as millennials do not abandon Snapchat, it will be a successful IPO. And it should be a successful company too . . . unless the founders get too enamored by hardware and move away too much from the brilliant app that will be netting them a fortune very soon.