The Strategist

Snapchat aims to raise $ 4 billion during IPO

10/27/2016 - 16:19

Snapchat messenger plans to raise $ 4 billion during IPO, which should take place in the next year. According to Bloomberg’s sources, total value of the company, which recently changed its name to Snap, is estimated at $ 25-35 billion. Some say the value could even reach $ 40 billion. It is expected that the company will apply for IPO in the first quarter of next year, probably in March.
So far, there is no guarantee that the four years-old company’s IPO will take place within the specified time, and that it will receive an assessment of more than $ 25 billion.

If all goes according to plan, Snap’s IPO may become the largest ever carried on the American stock exchange since 2014. Back then, Chinese online retailer Alibaba received an assessment of $ 168 billion. Snap can also be the first of companies financed by venture capitalists to test the public market.

The price of $ 25 billion includes a significant premium to Snap’s latest assessment of $ 17.8 billion assigned to the company in May. This is a good omen for the IPO market, which until recently has suffered from unwillingness of public investors to recognize evaluation of many start-ups in Silicon. Valley.

Such a high evaluation can be explained by a sharp rise in revenues since 2014, when the company first started to sell advertising. In 2015, Snapchat received $ 60 million in revenue. As for this year, the company expects revenue of $ 250 million to $ 350 million in 2016, and $ 1 bln. in 2017. Even now, according to two people familiar with the situation, Snap’s revenue has exceeded upper limit of its forecast for 2016. Yet, according to them, Snap is still loss-making, since it is still focused on revenue growth and monetization of its large user base.

Snapchat’s peculiarity lies in the fact that messages there are available for view for ten seconds. Then, they disappear. First information about the possibility of IPO got public last year, when the company was estimated at $ 15 billion.

Bloomberg Intelligence estimated that about 235 million people use Snapchat every month. This is yet far away from 1.71 billionth monthly audience of Facebook, but is close to Twitter’s figures. In addition, Snapchat’s audience shows greater activity. Analysis of Cantor Fitzgerald says that an average Snapchat users spend in the messenger about 10 minutes, compared to 6.4 minutes of Instagram.

Business ambitions’ Snapchat reap huge benefits from the fact that its audience belongs to a very sought-after demographic segment. About 70% of American smartphone users 18 to 24 years-old use Snapchat. This is a terrific level of demand from young people whose consumer habits differs greatly from the older generation. For example, only one in five millennials has eaten a Big Mac at least once in a lifetime. In addition, people under age of 35 years spend less time watching TV. Snapchat proved to be one of the best marketing platforms aimed at young audiences. 

About a quarter of Snapchat’s advertising sales accounted for other types of premium content, such as Lenses, a kind of filters for selfies. According to eMarketer, the company's revenue in 2018 will grow to $ 2 billion, compared with less than $ 60 million over the past year. If Snap manages to correctly use the rapid sales growth, the company will enter the elite club. There are less than 250 companies in the US with the same or bigger value of shares. Snap’s $ 25 billion is about the same value as that of LinkedIn and HP Inc.