Snapchat (recently renamed Snap Inc.) has filed for an IPO reportedly set for Q1 2017. Snap is seeking a valuation of $25 Bn according to reports at Bloomberg . The question arises if such a rich valuation of 25X Forward Revenue makes sense at all.
"At $25 Bn, Snapchat would have roughly the same value as Linkedin and HP."
What is Snapchat and how exactly is making money ? Snapchat primarily sells video ads. It also sells branded "filters" and most recently, a Discovery feature for mass marketers. Snapchat selling point is its demographics where users ages 18 to 24 account for 70% of the reportedly 235 MM it now has. If that holds true, Snapchat is the first of the major social network that has built upon a targeted -in this case, youngest- demographic base. Is that worth paying more for? Facebook did not have such a demo base when it went public in 2012.
It can be argued that any of those on Snapchat are already on the vaster platform (FB). Are they not consuming the ads on that platform ? If they're not, then Snapchat is a direct threat -competitor to FB.
The churn rate on Snapchat could be considerably higher than FBs or any other social network. People continue on FB as they age, while being on Snapchat may become a distraction to older adults. Older users are likely to stop sending self-erasing videos of themselves. Unless... Snapchat has something more to offer. Does Snapchat offer a more personalized experience than FB ? I'm not even sure i10 seconds videos are videos in the proper sense, or maybe they are videos in their own category, "ten seconds shorts".
It is obscure why advertisers would pay some of the highest rates in the industry for users who "have no strong brand loyalties" [user description according to advertisers' research]. Perhaps there is evidence to the contrary and those users engender early steadfast adoption, but I am not aware of it.
More of Snapchat : at Tracxn - More at: https://wallstreetfinancier.blogspot.com/2016/11/…
As I grow older, I care more about permanence. Maybe I am too old school (and half a decade outside the core user base), but I like to receive a video and play it several times over, and be able to come back to the best videos (hiking in Austria, friend's baby's first steps) over again. SnapChat as a way of communicating is conceptually interesting, but using it to me carries this feeling of ennui.
Where was I? Oh, yes. Snap is overvalued, clearly. The stock will probably still climb for a while on a combination of hype and actual growth, but at some point - where is the massive further implied growth? Where are the profits? Will a scandal about message permanence (such as a court case where Snap revives a photo off of its servers) hurt the company? What if users migrate to the next big thing? Vine in particular comes to mind, not a true comp, but directionally instructive.
+1. You can read an ex-employee making his case for it. Unconvincing. https://www.quora.com/Now-that-weve-seen-Snapchats-IPO-filing-S1-is-it-…
you could invest in WSO for a much lower valuation, how about 20x fwd revenue? ;-)
Lets not even look at the financials yet or lack there of. FB has carbon copied everything Snap has 'innovated' (e.g. Stories, Filters, etc.) and rolled it out to a larger demographic. FB also has standing contracts and MSAs that make bolting on new advertising mediums easier. Snap threw up on the FB bid price (which even then was more than fair) and are now dictating a huge valuation with non-voting right share offer.
To the value investor, this is all a non-starter. To the growth investor--remind me how they view negatives earnings and thus negative P/Es?-- this is probably a non-starter. Tech IPOs, however, especially those run by superstar TMT desks have typically done well (look at the tech IPOs in 2016). Additionally, though they have FCF loss, look at the investing cash outflows. They are rising YOY and their revenues are skyrocketing. If they can lock consistent topline growth (basically get back their growth in users and attract advertising away from competitors) and get control of their cash flows (aka use the IPO capital to acquire Accretive targets, temper net working cap), then who knows, it might actually be worth looking into.
Also--lets face it--there is 'buzz' around this IPO. There will be dumb money pouring in and long only funds pouring in.
maybe I'm an idiot who doesn't understand VC, but I cannot fathom why people are so willing to pay for a company that's not yet close to a positive bottom line.
having stuff in the roadshow deck talking about stickers and filters seems a LOT like the tech bubble to me (companies being valued on price to click ratios, eyeball counts, and the like, instead of FCF and bottom line earnings)
also, he won't bang miranda kerr? dude...that's even loopier than your valuation
the only thing I'll take issue with here is the market not having money. the ones who are still dependent upon their parents are the single biggest influence on parental purchase decisions, so while they don't have their own money, that's absolutely a demographic to capture.
Sorry for bumping this, been busy.. fair enough point but I don't think Snapchat will be the innovator Google is. I'm not betting my money against it yet though.
Edit: some glitch caught this annoying flagging mess in my quote