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15/02

Blog


Snap’s IPO: a story worth saving or just another dodgy filter

Who would have thought that in the space of 5 years, we’d have gone from “what’s the point if it disappears after 10 seconds?” to “I’m a talking frog”.

That’s the story of Snapchat in its simplest form anyway. In a bit more detail: the app has gone from an idea in a university dorm room to a multi-million dollar global business.

The Numbers

With approximately 160 million daily active users globally by the end of 2016, a growth of around 22% since the start of 2016, there is no denying that the social media app has the firepower to tussle with the likes of Facebook and Twitter. All of this has accumulated to the news that Snapchat’s parent company, Snap Inc., filed for a $3 billion IPO at the end of January.

To those who don’t know, this basically means that Snap Inc. is going to sell its shares on the US stock market, allowing investors from all over to take their slice of the Snap Inc. pie, should they wish. The co-founders of Snap, however, are said to be seeking a hefty $25 billion valuation on their social media company after revenues of $404 million in 2016. Just to give you an idea of the height of this valuation: when Twitter went public in 2013, they sought to value their company at $14.2 billion after revenues of $316 million, around 40% lower than that of Snapchat.

Snap Inc. admitted to a loss in 2016, to the tune of around $515 million, meaning no profit, i.e. no earnings, were made. Therefore the usual price-to-earnings ratio would not hold up. Instead, analysts have used the price-to-sales ratio as a method of quantifying how much they believe investors will be willing to pay for each dollar of revenue. So, maths caps on.

Twitter = $14.2bn: $316m of revenue = approx. 45:1.

Snapchat = $25bn: $404m of revenue = approx. 62:1.

What this ultimately means is that Snap is asking for a valuation 62 times their sales. From what I can tell, that’s rather a lot. Whether or not investors will bite is another question.

Not the stories…

Unfortunately, I can’t comment much more on the financials of this bold move because I left my MSc in Investment Banking at home. But from a user perspective, I have to say I’m not too sure how I feel about this. From my point of view, the only thing that I can cross my fingers for is that it doesn’t have any impact on the app itself.

Currently the app makes the majority of its money through advertisements and endorsements, namely allowing companies to produce micro-content on Snapchat’s easily navigated ‘Discover’ page. I’m a big fan of this content, whether it is the incredible recipes on Tastemade to the tech updates on Mashable. However more recently, the app has snuck in an advert or two while flicking through my friends’ stories.

Now while this is a relatively minor inconvenience, it is another example of how saturated with promotions the app could potentially become. I’m sure I speak for plenty of people when I say there’s nothing worse than an app you know and love being taken over by advertisements. If Snapchat are going to display more advertisements in their app, there is a call for more creative and innovative ways of doing so. In other words, leave my stories alone.

Although realistically there should be minimal correlation between a high level of investment in Snap Inc. and the decline of Snapchat, I just can’t help but be sceptical. One thing is for sure; they better keep that puppy filter. It’s adorable.