Snap Inc., the parent company of popular messaging app Snapchat, is gearing up for its initial public offering (IPO) filing sometime this week, according to multiple reports. Estimates suggest Snapchat stock could be worth in the neighborhood of $20 billion to $25 billion once the shares hit the market.
Essentially, with a snap of their fingers, investors could become instant millionaires. But should you buy the stock now or wait for a few weeks or months after the filing?
Valuation metrics aside, not everyone believes that Snap’s business has a future. It’s “total junk,” said Trip Chowdhry, managing director of equity research at Global Equities. Chowdhry, who insisted Snap is “hyper-inflated,” argues that market is at the end of the social media boom. “Novelty is giving way to fatigue,” he claims.
The question, then, becomes whether Snapchat stock will be closer to Twitter Inc (NYSE:TWTR), which has struggled over the past couple of years, or will it be more like Facebook Inc (NASDAQ:FB), which has become an advertising and technological juggernaut?
More Like FB Stock or TWTR Stock
In that vein, some analysts believe Snapchat’s advertising potential may one day threaten Facebook. Martin Sorrell, the chief executive of WPP, the world’s largest advertising firm, recently told CNBC he believes it’s possible.
Sorrell recently told CNBC that his firm’s clients spent a whopping $90 million on advertising on Snapchat last year, which was triple the $30 million his firm expected at the start of the year. So he expects its 2016 revenues to be at the higher end of any conservative projection that might be out there.
“It does become a threatening alternative to Facebook and I think that’s the big opportunity for them,” Sorrell said. “I think Facebook is concerned about the potential opposition.”
To that end, while Snapchat does have very attractive aspects, particularly the strength of millennials to its platform and engagement with videos, the company must still execute the IPO to avoid making the level of mistakes Twitter made in its 2013 IPO. To help analysts better understand its growth drivers, Bloomberg said Snap set out to prove that it has 150 million monthly active users by presenting several different metrics at investor meetings.
Notably, unlike Twitter, which lives and dies by monthly active users, Bloomberg reported that Snapchat has told investors to focus on how it plans to expand user engagement to drive average revenue per user higher. Likewise, the number of snaps, consisting of captioned photos and short videos, which users take daily and how long they spend on the app.
All told, Twitter’s fate is something Snap desperately wants to avoid, but the idea that it can challenge Facebook also seems farfetched. As for the IPO, there is certain to be tons of excitement, given the popularity of the app. But I’m not willing to bet my own money yet.
Not until I see one quarter’s worth of profitably as a public issue.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.