Is Snapchat a good buy or sell?
Well it depends how you look at it.
Initially, the parent company of Snapchat fixed the release of the first shares at $17.00 USD and shortly the market should start trading there. However, the information varies as to true value, with word on the street stating the market cap anywhere from $20 – $24 billion USD. That’s a big difference. And what about further dilution…
How are they coming to these very different valuations, which should measure the total value of all shares in circulation? The answer is dependent on how you count those shares. For instance, are you counting stock options that have not vested yet? What about convertible shares and any other permutations available? If you count these elements the valuation will be significantly higher than just counting the shares to be released into circulation today?
The company is saying in its SEC filing that it expects to issue 1,157,270,170 shares outstanding after the IPO. If you use the expected open price of $17 USD that yields a valuation of just a bit under $19.7 billion USD. However, the underwriters also have the option to offer as many as 30 million more shares. This is known as a ‘green shoe’ or ‘over allotment.’ As part of their SEC disclosure SNAP has said that there are significant additional numbers of shares to be released to the market and that will dilute the value of those left holding $17 shares.
As an example, Snapchat Chief Executive Evan Spiegel will receive a ‘CEO award’ that will equal 3% of all shares outstanding at the end of the offering, outstanding options and restricted stock. This pushes the valuation to roughly $24b USD. That is why some news channels are reporting that figure. However, it is also to be noted that both WSJ and Bloomberg news are reporting that Snapchat’s last internal valuation returned a valuation figure of only $18b USD.
How does Snapchat make money?
According to a TechCrunch presentation, Snapchat has had rapid income growth from $50m in 2015 and a projected $250m-$350m expected for 2016. Further, the management team is projecting income of between $500m – $1b for 2017! That’s a very enthusiastic projection. (Remember it took Facebook 6 years to top the $1b USD mark and Snapchat only launched in 2011.)
Snapchat has 3 distinct revenue streams; camera, content and communications. As an example, they have monetized their user camera interface by adding branded content to the pictures users can take of themselves. X-men; Apocalypse and the Hunger Games both paid to take over this part of the platform for the run up to their film launches.
I’ve not tried it myself but it is said users could swipe their Snapchat screens and buy theatre tickets. If it worked that way, that’s a significant possible revenue stream as well as they could charge commissions on ticket sales.
Ultimately, these innovations can be copied by others and Facebook has launched similar services on their What’sApp platform and Facebook Messenger. But, Snapchat’s founders are certainly trend setters in their approach and they could reach their 2017 goal of $1b in yearly revenue.
First Global Credit clients can buy or short Snapchat stock on the platform, using bitcoin collateral margin to finance the trade of stock symbol SNAP.
Good luck traders.
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