Reportedly, Snap Inc. parent company of Snapchat is gearing up for an Initial Public Offering (IPO) as early as March, next year. Per Reuters, Snap has already filed for an IPO with the Securities and Exchange Commission (SEC) under the U.S. Jumpstart Our Business Startups (JOBS) Act. The Act allows companies with less than $1 billion in revenues to secretly file for an IPO.
Valued at $20–$25 billion, the photo-messaging app will be the largest U.S.-based technology IPO since Facebook’s (FB - Free Report) debut in 2012. Additionally, Snapchat will be the largest IPO since Chinese eCommerce giant Alibaba Group (BABA - Free Report) went public in 2014.
While Alibaba has a Zacks Rank #3 (Hold), Facebook carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
In its last funding round in May, Snapchat raised $1.81 billion at a valuation of almost $20 billion, making it bigger than Twitter (TWTR - Free Report) , a Zacks Rank #3 stock, which started trading in Nov 2013. Per Bloomberg, Snapchat can raise $4 billion at current valuation. Analysts believe the valuation can touch $40 billion at the time of IPO.
Snapchat's investors include General Atlantic, Sequoia Capital, T. Rowe Price and Lone Pine. Per Reuters, Alphabet’s (GOOGL - Free Report) venture capital arm CapitalG has also invested in the social networking stock. Alphabet also carries a Zacks Rank #3.
Facebook’s Loss Snapchat’s Gain
According to TechCrunch, Snapchat has roughly 150 million active users and currently estimates revenues in the range of $250–$350 million for 2016, up from $59 million (probable) in 2015. Moreover, the company is aiming to achieve $1 billion revenues in 2017.
Growing interest of advertisers, who are on the lookout for an alternative to Facebook in the social networking space, is likely to drive Snapchat's popularity.
Recently, Facebook stated its concerns about hitting the maximum advertising load, which means that the company is not in a position to increase the number of ads it can display. This is anticipated to impact ad revenue growth going ahead. (Read More: Facebook Q3 Earnings Top Estimates, Outlook Cautious)
We believe that Facebook’s woe presents a significant opportunity for Snapchat in attracting advertising dollars. Snapchat’s fast growing user-base consists of primarily millennials (age 12-24) which is an attractive demography for advertisers.
Further, according to comScore data, Snapchat’s penetration among older millenials (Age 25-34) and those above 35 years have increased significantly (38% and 14%, respectively) over the last three years.
Moreover, the company is diversifying its revenue source as it recently started selling Snapchat spectacles worth $130. Per Reuters the spectacles are equipped with a camera that connects wirelessly to a smartphone to take and send "snaps".
Rejuvenated IPO Market to Boost Snapchat
IPO market remained sluggish for most of 2016, with only 117 companies filing versus 225 in 2015, per data from Renaissance Capital. Moreover, IPO proceeds declined almost 40% to $17.2 billion impacted by the volatility from the U.S. presidential elections and Brexit.
As these headwinds fade away, the technology IPO market is expected to rebound in early 2017, which will help Snapchat’s IPO to gain momentum.
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