Snap Inc, the owner of Snapchat, is set to make its debut on the New York Stock Exchange today with a better-than-expected market valuation of $24bn (£19bn).
The company has priced 200 million shares at $17 apiece, with investors demand helping the tech start-up to command considerably more than the $14 to $16 a share it was hoping for.
Snap’s flotation has excited Wall Street. An estimated 158 million people use its messaging app every day – sending photos to friends which disappear a few seconds later.
Snapchat key appeal is its popularity with millennials, who use the app’s filters to add special effects to their selfies.
Although Snap is going public at a much earlier stage in its development than Twitter or Facebook, the five-year-old company is valuing itself at nearly 60 times revenue, more than double the 27 times revenue mark Facebook fetched in its IPO.
To justify its relatively high valuation and fend off concerns about slowing user growth, Snap has emphasized how important Snapchat is to its users, how long they spend on the app and the revenue potential of the emerging trend for young people to communicate with video rather than text.
Bigger than Twitter
The valuation means Snap is worth $13bn (£10.6bn) more than Twitter, but the fledgling social network is way behind Facebook, which has a value of $395bn (£321bn).
Snap’s 26-year-old co-founder Evan Spiegel will get a 17% stake worth $4bn (£3.26bn) , buthe company has many hurdles to overcome.
Snap’s growth has slowed considerably since the Facebook-owned app Instagram cloned a key feature of Snapchat called “Stories”, which allows a user’s favourite photos and videos to be played on a loop to their friends for 24 hours.
Whereas Snapchat added 36 million daily active users in the first half of 2016, this slowed to 15 million in the second half of the year.
Even though it has enjoyed a seven-fold increase in revenue, net losses soared by 38% last year because of its bigger rivals.
The company’s IPO is also unusual because new investors will have no voting power – with its co-founders continuing to maintain tight control over its future.
Snap has brushed off concerns about slowing growth by pointing to how long its users spend on the app, as well as the revenue opportunities that will arise through the trend of young people using video to interact with each other instead of text.
A test of new players vs. Facebook and Google
Robert Lang, CEO at Socialbakers, commented on the IPO: “The market seems to be bullish on Snap shares. That suggests investors are betting Snap’s innovative streak will outweigh the growing competition it faces from Facebook, which has moved aggressively into Snapchat products like stories right across its business, from Facebook to Instagram to WhatsApp. Snap has been an early leader in augmented reality with the Snap glasses, and there are even reports that they want to build a selfie-drone. That kind of innovation can keep the user base growing, and increase the stickiness of existing users. The big question for 2017 will be if they can translate that innovation into a growing ad-sales business, or if sales decelerate from their big jump in 2016.
“In many ways, Snap is a test to see if new ad-supported networks can emerge and grow when they are competing for dollars with Facebook and Google, which account for more than 80% of the market. Ad dollars continue to shift from TV to online media, but the incumbents have massive advantages in terms of competing for this new money, thanks to their huge user bases. If Snap succeeds as a public company, it’ll be a signal that new “walled gardens’ can emerge and thrive.”