Snapchat IPO to aim for $22.2bn valuation

Conor Coyle Sharecast | 16 Feb, 2017 09:11 - Updated: 17:45 | | |

Snapchat Discover

Parent company of social media app Snapchat, Snap Inc., has set a valuation of between $19.5bn and $22.2bn for its flotation on the New York Stock Exchange.

Snap will be the first US social media business to go public since Twitter made its debut over three years ago, and could well be the biggest tech IPO since Alibaba Group raised a massive $25bn in 2014.

Snapchat is an app which began as a platform for users to share photos with each other which would quickly disappear, but has developed its business into an advertiser's dream, capturing the attention of teenagers and trendy millenials.

The company values its shares at between $14 and $16 on a diluted basis, as it now embarks on a countrywide roadshow in order to convince investors of its worth.

Its revenue rocketed in 2016 to $404.5m, in comparison with $58.7m in 2015 as advertisers and news agencies jump on the Snap bandwagon.

Snap Inc. could make its appearance on the stock exchange as early as March, according to reports. It faces a key question of whether potential investors are convinced that the app is no longer a fad, and will be able to grow consistently in years to come.

Snap hopes to move beyond its social network in order to expand towards everything camera-related, as it attempts to enter the stock market with the SNAP ticker.

"In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones," the company wrote in its filing ealier this month.

"This means that we are willing to take risks in an attempt to create innovative and different camera products that are better able to reflect and improve our life experiences."

Neil Wilson, senior market analyst at ETX Capital, expressed doubts that Snap will be able to live up to its valuation considering it is currently making a loss.

"The company lost over $500m last year, up from $373m in 2015. A cash burn of close to $1bn in two years is a cause for concern, if not alarm," Wilson asserted.

"In the old days companies had to deliver profits consistently before they were allowed to list on Wall Street, but these days we are used to loss-making start-ups tapping investors for cash. But how much cash is what matters in the case of Snap. The comparison with Facebook is instructive - Facebook had booked a $1bn profit in the year before its IPO, while Snap is coming into its floatation after losing $515m."

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