A High Valuation Awaits Snap IPO
Snapchat (otherwise known as Snap Inc.) has started preparing for its initial public offering (IPO) in 2017.
The messaging app was in news recently when it launched its cool sunglasses, “Spectacles,” which can record 10-second videos. However, talks of an IPO have been around for a while, and now another piece of news arrives confirming that Snap may tap the equity market sooner rather than later.
Reports came in this week that Snapchat had picked its IPO bankers. The bankers Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS) shall lead the IPO of Snap Inc., which is expected as soon as March next year. JPMorgan Chase & Co. (NYSE:JPM), Deutsche Bank AG, Allen & Co. LLP, Barclays Plc, and Credit Suisse Group AG will also be the joint book runners. (Source: “Snapchat Picks Morgan Stanley, Goldman Sachs to Lead IPO,” Bloomberg, October 12, 2016.)
The Snap Inc. IPO is expected to be one of the biggest technology IPOs in recent years. With CEO Evan Spiegel at the helm, the company is now transforming into a “camera company” from a messaging one. Hence the change of name to Snap Inc.
But how does it plan to continue growing its ad revenues?
Snapchat has been focused on improving its ad targeting, and it rolled out three new targeting options for advertisers last month. This gives more options to marketers who are looking at social media options more than the traditional ones. The messaging app has now reached 150 million daily active users around the world and is projected to generate $1.0 billion in ad revenues in 2017. Hence, it seems that getting more users and advertisers would not be difficult for Snap Inc.
Moreover, Snap Inc’s hardware business is going to take off soon, as the Spectacles are expected to hit the market, priced at an attractive $130.00.
A recent survey by Piper Jaffray Companies (NYSE:PJC) confirms that Snapchat is the most preferred social platform among teens, way ahead of Facebook Inc (NASDAQ:FB), Instagram, and Twitter Inc (NYSE:TWTR). This trend also reflects the move to more video- and image-based online media, especially among younger groups. (Source: “Snapchat is king among teens as Facebook declines in popularity, survey shows,” CNBC, October 13, 2016.)
The company’s transition into Snap Inc. is being watched with great interest, and potential investors would be wise to keep tabs on the Snapchat IPO, along with the user numbers and ad dollars that the company generates.