Last week the Corporation Snap Inc. owner messenger Snapchat and developer of “smart” glasses Spectacles, capable of recording short videos — revealed financial and operational results for investors in the IPO, planned for March of this year. As it turned out, in 2016, the company’s revenue grew 7 times compared to the previous year, reaching $404,4 million against the expected $350 million Daily audience of Snapchat users has increased by almost 50% compared to 2015 year, to 158 million people, is more than, for example, the social network Twitter (140 million).
At the upcoming IPO, which will be held under the SNAP Ticker on the new York stock exchange (NYSE), the Corporation hopes to place shares for $3 billion. This allows us to consider the deal one of the largest offerings in 2017. At the last round of financing in the first half of last year, Snap Inc. was able to raise $1.8 billion, after which its market capitalization has reached $16 billion, According to estimates by the Wall Street Journal, during the March placement, the company’s value could grow to $25 billion.
It should be noted that the potential of Snap Inc. highly appreciated in the market even in 2013, when your wish to purchase the service Snapchat announced the social network Facebook. The company Mark Zuckerberg tried to buy this app for the astronomical $3 billion, but in the end was refused. Social service Snapchat is designed to share online photos and videos along with short text comments in real time. Feature messages in the messenger is that they self-destruct after 10 seconds after viewing. This equates communicating on social networks to a living dialogue. In addition, in Snapchat you can share a video story, which during the day will be available to all users of the social network.
The app is extremely popular in the United States and Europe: daily audience in these regions is 68 and 52 million respectively. According to research by Edison Research, last spring, Snapchat was the second most popular social network in USA after Facebook. The service is interesting primarily young audience: 45% of its users are aged 18-24 years. This generation is rapidly gaining purchasing power and an interest in online shopping, which is reflected in the growth of advertising in Snapchat.
The app has already appeared on pages of clothing retailers and sporting goods restaurants and pizzerias. It also actively working the media houses: the American sports channels in social media videos from games and training. In January 2015, the app was launched Snap Discovery, which has attracted a social network such media conglomerates as Cosmopolitan, National Geographic and CNN. However, Snap expects that mobile advertising segment will remain the main growth driver for its business. In 2017, the Corporation expects to increase annual revenue to $1 billion. This growth will be possible due to the rapid growth in the global mobile advertising market, sales have tripled in 2016 to $66 billion, and in 2020 may reach $196 billion, according to the IPO prospectus a Snap.
In the short and medium-term framework investment in Snap Inc. look justified with a horizon of three to five months. Their potential yield may reach 25-30%, even under the condition that the shares in the IPO will be placed on top of the price range. This, however, does not mean that the Snap will not be able to invest for the long term. As the excitement around the company will come to naught and its quotes will show the retracement, the investor will be able to buy them at a more attractive price. These more favorable entry points should be expected in the second half of 2017.
The only thing that may cause concern to the investor in connection with the public offering Snap is the profit of the company. By the end of 2016, the company recorded a net loss of $515 million on revenue of $404,4 million — that’s 60% more than in 2015. However, the high growth rate of sales (700% in 2016) allow us to hope that in 2017, the Corporation will come to its planned figure at $1 billion. In this case, the loss of Snap will decline, and by the end of 2018 the company has all the chances to get plus. However, this fact is important, rather, upon the purchase of shares of the company under a long-term strategy. However, long-term investors will need to closely monitor how justified the Snap projections on its own revenues.
Also, investors should pay attention to the slowdown in the quarterly growth of the audience Snapchat. In the fourth quarter it amounted to just 3.2%, while in the third quarter number of service users increased by 7% compared to the previous quarter. However, and this fact can be seen as a result of the outstripping growth of the audience in previous years: in 2015-2016, he was 50% a year. Further dynamics of growth of the number of Snapchat users will depend on how the service will succeed in the conquest of markets outside Europe and North America. While Snap does not intend to abandon the global expansion.