A lot of articles around the internet are discussing the Initial Public Offering of Snap Inc., the parent company of Snapchat App, and its prospects and all this is well deserved. This Initial Public Offering is going to be one of the biggest technological Initial Public Offerings in all the years, drawing comparisons to huge Initial Public Offerings in the social media sector like Facebook or Twitter.
Although these comparisons are more apt with Facebook rather than Twitter as the latter continues to make losses as compared to Facebook that has proved itself as highly resilient. By amending their SEC filing, Snap has announced that they are targeting a price range between $14 and $16. The company, on the other hand, was valued in between $19 billion and $22 billion, which is well below the expectations of investors that was $25 billion.
Snap is expected to change their valuation at some point one way or the other before their Initial Public Offering launches formally. This initial value clearly indicates that Snap Inc. is a little more cautious than expected initially.
At this lower valuation, Snap Inc. is a much better investment, but a lot of the investors are still nervous about all the fundamental problems the company has. Investors are worried how Snap still hasn’t proven a method on making the company profitable and as long as Snap Inc. cannot answer these background checks, investors will continue to avoid investing in Snap Inc. They would prefer looking for some other better opportunities in the Initial Public Offering market.
The Profitability Road
The thing to note when it comes to the lower valuation of Snap Inc. is that it is still set very high relative to their sales. A report from Fortune states that the valuation of Snap Inc. is said to be 47 times the sales, which is way higher than Twitter (44.8), Facebook (28), and Alibaba (19.8). Therefore, Snap has a lot of wiggle room to lower its IPO even further as the price is still very expensive for an IPO.
The most anticipated tech IPO in years, Snap Inc. filed another amendment to slash their valuation by 24 percent.
This valuation is also very high as Snap hasn’t yet explained their path to profitability with such fickle base of consumers and rising intense competition.
The above factors explain how Snap’s growth of their user base is already on a slowing path even with it having such massive losses.
The investors could be attracted to Snap Inc.’s IPO due to early excitement, but they should still look for other opportunities even after the lower pricing and lower valuation.