The upcoming Snap(chat) IPO has caused quite a stir on Wall Street as decision makers asked their Millennial juniors what this company does, pretended to understand the answer and then blithely assumed that it could conceivably make money...someday.
But as the LA-based tech startup predicated on the notion of making nude selfies ephemeral nears its listing date, people are starting to look at SNAP with an arched eyebrow...and SNAP is apparently feeling the shameful heat of their gaze:
Snap Inc., owner of the popular messaging app Snapchat, set a lower-than-expected valuation range on Thursday, amid mounting investor concern over its unproven business model, slowing growth and tight founder control.
The company, which filed for an initial public offering earlier this month, was widely expected to be valued at between $20 billion and $25 billion. However it said on Thursday it was targeting a valuation between $19.5 billion and $22.3 billion, ahead of an investor roadshow due to start on Monday in London.
Some of that tempered enthusiasm might have been caused by a look at this, Twitter's stock performance since IPO:
While Snap is a different animal than Twitter or Facebook or even Instagram (which recently stole Snap's girl by essentially replicating Snap's user experience with "Instagram Stories") there is something hauntingly familiar about Snap's financial situation.
Snap, which is going public at a much earlier stage in its development than Twitter or Facebook, saw its loss widen to $514.64 million in 2016 from $372.89 million a year earlier. While not rare for a young company to be unprofitable, it is less common for an unprofitable company only five years old to ask for as whopping a valuation as Snap is aiming for.
But also - like - unfamiliar?
With Snap's estimated valuation expected to be around 49 times revenue, and Facebook's being 27 times, the IPO aspirations "stress how much Snap’s post-IPO growth must exceed Facebook’s to compensate for its lack of short-term profitability" said Magnan at Duff & Phelps.
Snap generates most of its revenue from advertising and will pay Google $2 billion over the next five years to use its cloud computing services.
And factoring in that Snap's almost unprecedented IPO structure keeps voting rights from shareholders and keeps them concentrated in the hands of its founders. So if you're thinking of buying stock in SNAP, you're essentially gambling on the notion that a few 20-something guys with no history of making their massive user base profitable will somehow figure it out on their own with a bunch of your money and none of your input.
But while the whole picture is troubling, perhaps SNAP's acknowledgement that it's not worth as much as it thought it was is a good sign. Not often you see a tech startup admit even the hint of doubt, even if it is a sucking money Sarlacc pit.