The parent company of the popular Snapchat app, Snap, is all set for its biggest initial public offering for this year. It is a new company that was founded 5 years ago and it is extremely rare for a technology company to go public within a short duration. On Tuesday, Snap commented that it is hoping to be valued around $22.2 billion. The officials from Snap are gearing up for the investor roadshow starting on Monday in London. Even though it is one of the highest valued technology company in IPO, it is much lesser than the targeted valuation. The lowered valuation is a result of the feedback from the investors.
Snap is taking all the measures to ensure that the demand for its shares remains high on the first day when it goes public. Some investors are concerned that Snap has gone public too early. Snap is still an unprofitable company and it is struggling to capture the market even with its innovations. Facebook is the top technology company leading the market in terms of profit while twitter is trying to keep up with the pace.
New user growth for Snapchat has been slow as the millennials have too many options for social networking. Facebook has already made Snapchat features available in the Instagram app. Investors express their concerns on whether Snap will be able to increase the user growth while minimizing the operational cost.
The idea of disappearing content is the prominent feature of Snapchat. When Instagram with 600 million users as of 2016 introduced ephemeral messaging, the number of users increased. On the other hand, the new active users for Snapchat was particularly flat in 2016. Snapchat currently has an average daily users of 158 million. Even before showing profits, Snap is showing a decline in growth and the company has taken a bold decision of going public.
Unlike Facebook, users don’t feel left out when they don’t use Snapchat. The Snapchat community is exclusive in its own regard. Those who are using it like it so much and they don’t want to leave the network. However, new users find it difficult to understand and they don’t mind avoiding it. Snapchat generates advertising revenue and it has partnered with Google to use the cloud computing services for $2 billion for the next five years.
Snap has cautiously offered IPO without voting rights. This means that the investors don’t have a say on the direction of the company. The co-founders of Snap, Bobby Murphy, and Evan Spiegel get ten votes per share while the existing investors get one vote per share. The ownership issue can be a hindrance to the profitability of the Snap shares. However, if Evan Spiegel is able to gain the trust of the Wall Street, investors won’t mind purchasing Snap shares.
Snap hopes that it could raise $3.2 billion with the first IPO offering of 200 million class A shares. Each share will be priced between $14 and $16. It is expected to hit the public market by March 1st.