The first major initial public offering of 2017 is coming in just a few months — at least if Snapchat parent Snap Inc stays on its tentative schedule. The thought is that the Snapchat IPO will go live in March, at an estimated valuation of $25 billion to $40 billion, and the offering is expected to raise up to $4 billion.
But no S-1 is available, so all those details are just educated guesses. Why no S-1? Because the company does not expect to reach $1 billion in revenue for all of 2017, so the company qualifies for an option that allows it to keep its S-1 hidden until closer to the IPO date.
So why should you pay a valuation of up to $40 billion, or even $25 billion, for a company that’s not expecting more than $1 billion in revenue this year?
Call it the Facebook Effect. If you bought into Facebook Inc (NASDAQ:FB) at its IPO in 2012, at the then-unheard-of price of $35 per share, you’re now sitting on shares worth more than $123 each; 250% returns in less than five years isn’t too shabby.
So now, Grandpa, do you know what Snapchat is? No?
Well, that’s OK. Apparently even Snapchat doesn’t know what Snapchat is.
A Camera Company?
Snapchat describes itself on its home page as a camera company. It’s far more accurate to say it’s a social networking company built around images.
Snapchat was first known for “disappearing” pictures — messages that are designed to be erased automatically after being read. It quickly added a “story” feature, combining pictures into a storyline that could be shared, along with video chat features. By last year, the company was doing 10 billion video views each day and launched a hardware product called Spectacles, a wireless camera built into a pair of glasses.
If some of these things sound familiar, it’s because Facebook, and Alphabet Inc (NASDAQ:GOOGL), have been copying them as fast as they can.
Facebook has Instagram, bought the same year Snapchat was launched for $1 billion, and right before the Facebook IPO. Their Direct service is directly competitive with the original Snapchat. Google now routinely offers users their photos as “stories,” and I got my mother’s funeral packaged for me before I returned home from the event.
So again, why buy Snap?
It’s All About Growth
You buy Snap if you believe its growth story, which is eerily like that of Facebook.