Snap, owner of the Snapchat app, this week hired Morgan Stanley and Goldman Sachs Group to manage its initial public offering, according to multiple reports citing people familiar with the matter.
JPMorgan Chase, Deutsche Bank, Allen & Co., Barclays and Credit Suisse Group reportedly also will play a role.
The IPO, expected as early as this spring, could result in a valuation of $25 billion or more. That would make Snap one of the highest-profile IPOs in years. It also would make it the biggest company to go public on an exchange in the United States since 2014, when Alibaba’s debut on the New York Stock Exchange placed its value at $168 billion.
At its most recent private funding round this spring, Snap’s value was pegged at $17.8 billion.
The company has projected $250 million to $350 million in revenue for this year and a possible $1 billion in 2017. It appears it already has passed the $350 million revenue mark, however. Last year, Snap reported revenue of $60 million.
“An IPO could make sense for Snap and its investors, given the still favorable stock market conditions,” said Andreas Scherer, managing partner at Salto Partners.
Comparisons to Facebook, which owns competitor Instagram, are “inevitable,” Scherer told the E-Commerce Times, but “this is where Snap falls short.”
Facebook “was a profitable business with an established revenue model based on its ad sales business, and a growth story that promised more traction in the mobile space,” he noted. “On both of these fronts, Facebook delivered.”
On the other hand, Snap “is a VC-backed company that’s still losing money,” Scherer pointed out. “Some might say that this IPO is the best way for the private equity companies to get their money back before it’s too late.”
An IPO often is inevitable for two reasons, according to a McKinsey report published this spring.
First, a company might be forced to go public if it should exceed the maximum number of 2,000 shareholders allowed as a private entity. Second, it might face pressure from shareholders seeking liquidity.
IPOs can be effective strategic tools to accelerate growth, the McKinsey report notes. An IPO can provide financing to scale up a business, improve brand credibility, and attract and retain key talent.
Assessing Snap’s Worth
More than 100 million people were accessing Snapchat daily as of this June, according to a Mediakix report, and 8 million videos were published daily on the app.
Among the report’s other findings:
- More than 60 percent of smartphone users in the United States aged 13 to 34 used Snapchat in June;
- Seven out of 10 users were millennials;
- 85 percent of Snapchat’s monthly U.S. users were between 13 and 34 years old;
- More than 50 percent of new users were 25 years or older;
- The percentage growth of those 35 years and older was greater than the penetration rate for 18-to-24 year-olds;
- More than half of Snapchat’s users were on the platform daily;
- 30 percent of teen users considered Snapchat their most important social network; and
- 60 percent of college-student users said they would purchase from a brand if sent a coupon on Snapchat.
All that translates to a great demographic for advertisers, so Snapchat in essence is selling its future promise.
Snapchat earlier this year announced Snapchat Partners, its long-awaited ad API that allows third parties to sell ad space on its app. It launched a pilot run with 10 brands. Snap expanded its pilot to more companies this summer.
Still, this is “an ugly time” to file an IPO, according to Rob Enderle, principal analyst at the Enderle Group, because of Brexit and the U.S. presidential elections.
Both are “likely to cause a lot of fallout,” he told the E-Commerce Times, and the market might not settle until 2018.
A successful IPO “would likely uplift the social media segment if it wasn’t offset by a problem, say Twitter’s failure, in the same period,” Enderle suggested.
“There’s too much volatility in the market right now,” he said. “Any IPO is a crap shoot, but social media properties, thanks largely to Twitter, are at even greater risk.”