Commentary

Snap's Valuation Takes A Hit, Pre IPO

Snap, Inc. expects to sell its stock between $14 and $16 per share, the tech darling revealed in an S-1 document filed with the Securities and Exchange Commission on Thursday.

By offering 200 million shares, that should value the Snapchat parent anywhere between $16 billion and $18.5 billion.

That’s considerably less than recent estimates that put the company’s valuation between $20 billion and $25 billion.

Trying to whet investors’ appetites, Snap said in a recent filing: “Our advertising business is still young, but growing rapidly.” Indeed, the company saw revenue of $404.5 million last year -- up more than 600% from the $58.7 million it generated in 2015.

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Along with growing membership, Snap is increasingly making more ad revenue from each user.

Worldwide, average revenue per user (ARPU) in the last three months of 2016 was $1.05 -- up from $0.31 during the same period a year earlier. In North America, Snap’s ARPU in the last three months of 2016 was $2.15 -- up from $0.65 year-over-year.

Yet Snap still is not making a profit. Last year, the company incurred a net loss of $514.6 million -- up from a net loss of $372.9 million in 2015.

What’s more, despite its impressive growth, investors may be concerned that Snap’s ad-centric business model is too one-dimensional.

That may be why Snap billed itself as a “camera company,” in its recent S-1 filing.

“The description may illustrate [Snap’s] intention to diversify more significantly away from advertising in the future,” Pivotal Research analyst Brian Wieser suggested in a recent note to investors.

Regardless, “If the company does intend to [diversify], it reinforces the early-stage nature of company at the present time,” Wieser wrote.

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