Snap Inc, the company behind disappearing messaging app Snapchat, went public on Thursday with the IPO price of $17 per share, valuing the company at about $24 billion. However, the share price rose by almost 44% on the first day of trading, taking the valuation of the tech start-up to $28billion. This represents the largest IPO of a US-based tech company since Facebook went public in 2012.
Here is how Snap’s exit compares to those of other social and messaging properties
Compared to other social media and messaging companies that exited after 1999, Snap, Inc. has the highest valuation at exit since Facebook went public in 2012, even beating WhatsApp’s acquisition valuation of $22 billion in 2014.
The Menlo Park-based social networking company had a valuation of $104 billion, followed by Twitter that went public in 2013 at $14.2 billion. Japanese messaging app, Line had a valuation of $6.9 billion when it went public in 2016 followed by LinkedIn at $4.3 billion.
Does the snapchat IPO make any sense?
According to Michael Wade, IMD Professor of Innovation and Strategy and Cisco Chair in Digital Business Transformation, “On the ‘yes’ side, the price per regular user is in line with recent deals. Snapchat has about 300 million regular monthly users, about half of whom interact with the app on a daily basis. Thus, at $25 billion, that’s about $100 per regular user. Microsoft paid a similar price for LinkedIn last year. Facebook paid a little less per active user for WhatsApp in 2014, but it was in the same range. Unilever paid substantially more per user of Dollar Shave Club in 2016. Of course, all users are not alike, and Snapchat is extremely popular with the 13-24 crowd, and thus attractive to many advertisers. Plus, its base in North America and Europe gives it plenty of room for global expansion.”
However, Wade also feels that the ‘no’ side also has some strong points. When evaluated on traditional financial metrics, such as revenue (about $500 million) and profit, the company shouldn’t be valued anything close to where it is. Plus, growth rates appear to be slowing.
Snap also faces existing competition in the form of Facebook, which has already become a dominant force in digital media. Facebook-owned Instagram has also been very successful in emulating many of Snapchat’s features and gaining mindshare.
“My biggest concern, however, is with the service itself,” says Wade. People use Snapchat because it is disposable—send it and it disappears. It operates with the attention span of today’s youth, i.e. none at all. Snapchat is popular largely because it is simple and fast—a quick social hit. Users don’t need to scroll though masses of irrelevant updates and holiday pics to get to the really interesting stuff. This makes the service fun to use, but it is a disaster for advertisers. People don’t go to Snapchat to search for information (like Google) to find a job (like LinkedIn), to deeply engage with friends (like Facebook), or to buy stuff (like Amazon and Alibaba). Its medium, much like Twitter, is inherently poorly designed to support advertising, and beyond this, there are no obvious sources of revenue or profit.
Snapchat began as Picaboo, a picture messaging app in 2011, was renamed Snapchat in 2012 and currently has 158 million daily active users. This makes its user base smaller than Facebook’s and Twitter’s at the time of their respective IPOs.
Facebook had 900 million users when it made its market debut and Twitter had 200 million users when it went public in 2013.