Snapchat is finally going public.
Snap Inc., Snapchat’s parent company, publicly filed for IPO on Thursday with plans to be a New York Stock Exchange-traded company under the $SNAP symbol. The company hopes to be valued at
$25 billion $22.2 billion (updated on 2/15), and investors will be able to purchase shares in the company as soon as March.
The company, however, is not yet profitable, just like Twitter ($TWTR) when they went public. In fact, they lost over half a billion dollars in 2016, despite making a tad less in revenues.
With this in mind, why is Snapchat about to become a publicly traded, and should you invest in them?
Snapchat is one of the most popular social networks around.
Snapchat has 158 million users using the product on a daily basis. Instagram has 400 million daily active users. Facebook has close to 2 billion. Last summer, Twitter had 150 million daily active users. While more recent Twitter statistics aren’t currently available, Snapchat could very well have more active users than Twitter.
Snapchat makes all their money in ad sales, with a little revenue coming in from their Spectacles glasses.
Media brands, politicians (including Trump), and consumer brands all buy Snapchat ads on a regular basis. Last year, these ad buys (and, sure, some of the company’s Spectacles glasses) added up to $404.4 million. The company made $58.6 million the year before, so they’re growing their revenue pretty rapidly. Unfortunately, they lost $514.6 million in 2016, too.
Selling stock lets Snapchat grow their business.
By selling shares of Snap Inc., the company can do everything and anything to turn Snapchat into a profitable business. They can also diversify past being “the Snapchat company” and offer more products that either tie into the service or have nothing to do with it. As a public company, Snap no longer has to seek investments from private investors to fund research, development, and growth. Instead, they’ll be able to get the money by selling stock.
Should you invest in Snapchat? That depends. The company is not currently profitable. Neither was Twitter when they first went public. Twitter is currently dealing with a decline in users and revenue, and their only way to stay afloat will likely be an acquisition from another company. If Snap Inc. can become profitable while continuously increasing users and revenue, then they could avoid Twitter’s current fate in the future.
These are, however, a bunch of “ifs.” The company is losing way more than it takes in, and how they’ll become profitable isn’t particularly clear. If you feel like they’ll somehow eventually turn a profit and become significantly bigger than they already are, then you might want to do your research on the company, their future, and their roadblocks before you invest. Then, when Snap Inc. goes public (likely in March), you’ll be able to buy their stock through your brokerage of choice as soon as they’re listen.
If you think the lack of a clear road to profitability and the similarity to Twitter’s IPO is a bit scary, you might want to sit this one out.