I would like to consider myself an avid observer of business news. Recently on Facebook I saw an article from 2016 that Snapchat plans on going public and at first I dismissed it because who uses snap??? I don’t. But apparently the younger folks do so I got my old a** to doing some research out of curiosity. This post is for anyone who is interested in stocks, business models and have a general curiosity for social media as such as myself. Hope you enjoy!
Back in 2016 Snap Inc., parent company of snapchat, announced they are going public in the first quarter of 2017. Fortunately that time is coming with an expected date in March to go public. Currently Snap Inc. has already filed with the U.S. SEC under the U.S. Jumpstart Our Business Startups Act. This allowed the company to file for an IPO, which allows observation of investors’ appetite for the company.
Shortly the company will be taking the next step to IPO by doing a “road show” to investors and pleading their case of why to invest with them. Sources state that the IPO price and value of the company will still be done in March 2017. The latest reports have the company valued at $20 billion. Another positive fact is Snapchat is the number one form of social video beating out Facebook & Instagram Live Video.
To put the IPO in a NBA perspective, we have Lebron James being compared to Michael. In a business perspective Snap Inc. is being compared to Facebook going public in May 2012. This is a good and bad sign for investors though. When Facebook went public it was the biggest tech IPO in the U.S. history and value continued to climb. However the first months were followed with potential lawsuits, hyped up values, late trading, high volatility and confusion everywhere. It took about three months for the stock to balance and confusion to be sorted out. If you want to read more on the subject click here.
Here are a few reasons and facts to help inform you of the company; from there you can come to a sound decision to invest or not to invest. If you are still interested in being an investor then continue to follow the story as the company is doing a 15 day tour of talking to investors and are set to release revenue reports.
Snapchat Stream of Income
A similar problem that most social media companies have is only one source of income and that is advertising. CEO Evan Spiegel has previously described Snapchat’s business model as having three distinct points of monetization: camera, content, and communication. Companies are able to purchase snapchat filters, sponsored posts and media outlets purchase news articles spots for advertising. As mentioned before the only stream of income comes from advertising. To become more profitable the company will have to find other income streams, expand membership geographically or charge more.
The obvious social media winners such as Facebook or Myspace have done well with finding markets and multiple streams of incomes. However, other social media companies such as LinkedIn and Twitter are struggling with finding other streams of income outside of advertising. No additional or growth of income means stock prices can remain constant or produce slow growth. My concern is that the same may happen to Snapchat. Snap, Inc. will have to file future business plans and that can give more information on how they plan on developing revenue.
This is a quick point I need to mention. In 2013 Facebook giant offered to buy Snapchat for $3 billion dollars. It is my personal opinion that Facebook will try to buy out the company in the future in order to get rid of competition. If Snap, Inc. profits off of the sale so will stock owners!!
High Number of Active Users
Currently snapchat has more than 100 million active users and 60% are ages 13 – 24. This age group is long sought after from advertisers who are trying to reach millennials. Advertisers have trouble with meeting millennials on a platform they are able to monetize better and the short attention span. A huge pro for Snapchat is the number of members and daily usage. In June 2016 Twitter usage was surpassed by Snapchat usage. The mass amount of member growth is a huge asset when it comes to information. I believe that the company could find ways to analyze usage and sell the information as another income stream. Hopefully, the company has been innovative enough with future plans on how to capitalize on the mass number of members besides 3rd parties purchasing advertising spots.
Back-End of Social Media
From Myspace to Snapchat we have come a long way. Unfortunately Snapchat seems to be on the back end of all other social media giants. As far as IPOs are concerned the only social media company to grow profits significantly has been Facebook. The future remains to be told but the odds are stacked against Snapchat to become a growing company. Maybe the time of social media IPOs are coming to an end after lack lustered events. It is certain that these companies continue to have the same problem with growing income outside of active users. Also, the attention span of Americans is extremely short and the next social media can take the spot of snapchat easily.
The bottom line is Snap, Inc. has the potential to be the next big tech superstar or fiasco. The world of stocks is not for those with low risk tolerance. I personally will be considering purchasing stocks but not long-term. This purchase is meant for a quick turn around as it is too risky for me. Investors will be watching the company and analyzing future growth plans to determine the actual value of the company. Decide for yourself and consult with your financial professional about logistics if you plan on moving forward.
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