Snapchat parent Snap Inc has filed the necessary documents to start the process of an initial public offering, according to a Reuters report. The lead underwriters on a Snapchat IPO will be Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS), the report says, and the offering should hit markets in March.
So, what do Snapchat’s financials look like?
Good question — and one that we won’t know for a bit longer. The filing was confidential. But we know one thing for certain: Snapchat can’t be generating more than $1 billion in revenues, otherwise the company would not be able to use a confidential filing.
But that won’t keep the Snapchat IPO from being red-hot.
What’s Behind the Snapchat IPO Hype?
Snapchat, which got its start four years ago, has grown like a weed. Remember, in 2013, Facebook Inc’s (NASDAQ:FB) Mark Zuckerberg offered $3 billion for the fast-growing startup. It was yet another sign of Zuckerberg’s innate ability to spot the next big thing … but it also gave us a glimpse of one of Facebook’s glaring weaknesses.
Namely, while the primary Facebook social media network has spread into the billions of users, it hasn’t been able to come up with a similar app that matches Snapchat’s popularity.
Perhaps the key is that Snapchat is about ephemeral experiences, with photos and videos quickly disappearing. FB, on the other hand, is really about keeping archives of memories.
Estimates for the size of a Snapchat IPO vary widely, but it’s generally agreed upon that the company should be able to raise a couple billion dollars at a valuation of more than $20 billion. And, of course, we could find out in a few months that this was a significant understatement. Many investors consider Snapchat to be a next-gen Facebook.
And we all know how well FB has performed for shareholders.
There are a few available metrics that shed light on the power of the Snapchat platform:
- 150 million daily active users
- Reach of 41% of all 18- to 34-year-olds in the United States.
- 10 billion video views a day (as of April)
Snapchat also has been working hard on pumping up its monetization. According to TechCrunch, the company posted revenues of $59 million in 2015 and are expected to jump to $250 million to $350 million this year. Next year, they could hit $1 billion.
Something else that could provide even more fuel for the Snapchat IPO: the company’s foray into the devices market. Snapchat Spectacles are glasses that are connected to your smartphone and allow you to take photos and videos. They are also on the fashionable side — unlike the dorky Google Glass offering from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), which turned out to be a disaster. The price tag is an affordable $130, too.
So, Snapchat could have a hit product for the upcoming holiday season, and it could be one of the first examples of how augmented reality (AR) can go mainstream.
It’s important to note that Snapchat is not the typical Silicon Valley operator. Keep in mind that it is based in Venice Beach, California, and appears to have more of an entertainment focus. Perhaps this is why Netflix, Inc.’s (NASDAQ:NFLX) Reed Hastings recently called Snapchat a competitor.
Regardless, a Snapchat IPO should be good news for the public offering market, which has lagged most of this year. If anything, the deal may encourage other high-profile companies to gear up for their on offerings as well — say Airbnb or Dropbox.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.