Why the Biggest Tech IPO in 2017 Adds More Challenges on Snap Inc’s Course

Why the Biggest Tech IPO in 2017 Adds More Challenges on Snap Inc's Course
Snap Inc. Stock Trend at NYSE
Snap Inc. Stock Trend at NYSE
Snap, after becoming the Biggest – Youngest – Coolest Tech IPO ever Since Facebook, needs to see profit very soon to make all this euphoria count.

It took less than six years for Snap Inc., Snapchat’s parent company, to debut at the New York Stock Exchange (NYSE). As the year’s first tech IPO in the US, the maker of one of the most popular social messaging and media apps launched public trading, offering IPO much above the market range and speculations. Sticking to its strengths, the company proved why it no longer remains the dark horse of the business. Moving away and ahead from rest of the league, Snap’s debut at NYSE should jig others to revisit IPO plans this year.

Snap Inc. trading on NYSE
Snap Inc. trading on NYSE

Snap had priced its IPO at $17 per share but jumped the opening price to $24.48 per share on Day 1 of trading, selling 200 million shares by the time day’s bell rang. Current evaluation puts Snap at $23.4 billion, which could amplify beyond $35 billion very soon. (some market insiders put the evaluation at over $41 billion)

The surge on Day 2 was even impressive, jumping 20% after NBCUniversal, a Comcast company, invested $500 million in Snap, through IPO. The investment is projected as a tech-investment and partnership with the “Next Big Social” platform after Facebook.

Snap Founders at NYSE via Twitter
Snap Founders at NYSE via Twitter

It is an IPO hurricane everybody in the martech industry knew as coming, but there wouldn’t be many who predicted this course for Snap. How big is this event!

Let’s make it clear—

As on March 4, Snap Inc. is worth more than eBay, Hewlett-Packards Enterprise, HP, retail giant TARGET, Kellogg, Estee Lauder, General Mills and AllState. In fact, Snap’s evaluation is so big that it has even superseded Intercontinental Exchange (ICE), the parent company of the NYSE!

Snap Inc. officially filed paperwork for IPO on February 2 at the backdrop of steep losses accumulated from 2015 and 2016. However, the massive revenue growth, pegged at $404.5 million in 2016, allowed the Venice, CA-based company to pitch its asking price at $3 billion. According to the S-1 filing with the SEC, Snap’s annual losses for 2015 and 2016 are $372.9 million and $514.6 million, respectively.

Despite losses and the comparatively lower number of user accounts compared to Facebook and Instagram, Snap’s fortunes have turned around dramatically with the change of name last spring from Snapchat, just months before the launch of its most impressive next-gen technology—Spectacles.

Snap Inc.’s Journey Leading up to IPO

We knew Snap’s IPO would be big the moment Snap chairman Michael Lynton, who is an early seed funder in the company, quit as CEO of Sony Pictures Entertainment. A company that attributes 91% of its revenue to direct sales and rest to partner sales, Snap’s ad-revenue sharing is set to grow significantly in 2017. Apart from its revenue and user growth, the company has also added massive workforce onboard globally in 2016, tripling it to 1,859 as on January 1, 2017.

For now, any company that hits the golden number in revenue run rate – $100 million in any quarter, as Snap did in Q4 2016, should open its eyes for a potential IPO. While most marketing legends thought Snap’s IPO valuation of $25 billion is “overly” ambitious, the “dream has come true” for the former Stanford University students Evan Spiegel (now CEO), and Bobby Murphy, who are now richer by $1.7 billion since last week. Spiegel’s individual stake in Snap — $4.5 billion!

The way ahead

With no visible profits, finance experts say that Snap may have to see the red ink on its balance sheet till 2020. As a hot martech company in the US, Snap should learn the hard lessons from Twitter’s IPO. Twitter witnessed 42% drop in its stock prices since its IPO in November 2014,  a story that took a very ugly turn following Facebook’s IPO the year earlier.

So where does Snap stand in all this?

As a newly-floated company, Snap would continue to get richer in the stock market. Until Snap tunes its revenue numbers to show some profit for 2017, the latest ‘hot tech’ company on NYSE may fail to prevail.

As video marketing and ad tech industry gears up for seamless integration with social media and messaging platforms, Snap fits as a cool candidate. Not only is Snap realigning its monetizing strategy for video marketing and advertising campaigns, it also looks all set to make it big in the AI race. Ad tech and AI capabilities hold the key to its survival.

Will the latest IPO turn it around for Snap?

Zen masters recommend, “Wait and watch.”

I expect a very competitive advertising model coming up from Snap that overpowers Facebook and YouTube in the coming months. Snap has exceeded expectations thus far. This is an even bigger challenge – break into profits and sustain it.

For now, Snap – You did an awesome job.

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