Social media firms are the newest kids on the block – they have disrupted how we connect and they have a material effect on how we invest. Chatter on social media platforms such as Twitter (TWTR) often provides investors an insight into market sentiment on Wall Street. The massive market caps of social media firms also give them a market-moving influence. For instance, Facebook Inc (FB) (owns Facebook and Instagram among others) has a market cap of $381.03B. Alphabet Inc (GOOGL) (owns Google and YouTube among others) has a market cap $561.13B.
Interestingly, social media firms are hot on Wall Street and you’ll need to shell out top dollar as an accredited investor or venture capitalist to own equity in the hottest social media startups. Interestingly, top-tier social media firms such as Facebook don’t usually waste time before they buy up any budding social media startup. For instance, Zuckerberg bought Instagram and WhatsApp so that they can complement Facebook instead of having them compete with Facebook.
However, the opportunity to own social media firms at a fair market value often presents itself by the way of IPO of thriving social media startups. This article provides insight into some of the reasons you should consider joining the Snapchat IPO bandwagon.
Snapchat is one of the hottest social media firms in the market right now. Snapchat rose to prominence with its ‘self destruct’ photos and videos that allows you to live in the moment. Snapchat is also becoming a major mobile player with its original videos and TV programming. Now, Snapchat is preparing for an IPO and I believe that investors ought to start conducting due diligence on the stock.
On Thursday February 2, Snap Inc. the parent company of Snapchat filed for an IPO in which it planned to raise $3B. The firm wants to sell non-voting shares that will be listed on the NYSE with the ticker SNAP. Snapchat said it had $400M in revenue in 2016 and the firm says it has 158 million daily active users. In addition, the firm is on a decent growth trajectory with more than 2.5 billion Snaps created every day.
Snapchat is currently in its growth stage; hence, early-bird investors have an incredible opportunity to ‘buy low’ and watch the share price of the stock rise as it continues to take center stage in the social media market. For instance, in Q4 2016, the firm reported a 243.48% increase in its daily global users to 158 million from 46 million in Q1 2014.
One of the top influencers on Snapchat also observes that Snapchat’s unique value proposition lies in its ability to help brands build a deep level of engagement with their followers on the platform. In a recent interview on Entrepreneur, Tai notes that “Instagram stories and Snapchat are more powerful than anything, other than YouTube — and in some areas they are even more powerful. These platforms allow you to essentially create your own TV shows.” Hence, you can expect Snapchat’s value to continue to soar as advertisers chase try to reach viewers on mobile as TV continues to lose its place.
A couple of points to note before you buy SNAP
Buying Snapchat seems to be a no-brainer but you’ll need to do your due diligence to ensure that you are making a fact-based investment decision. I have already presented some reasons investors may want to consider adding Snapchat to their portfolio after its IPO. However, it is important to provide insight on some potential pressure points.
To start with, Snapchat is relying on advertising revenue at a time that other social media platforms are looking beyond ad dollars to ecommerce and payment solutions. Hence, Snapchat’s revenue might peak out much sooner than expected if the firm doesn’t look for ways to unlock other revenue opportunities beyond social influencers and brands.
eMarketer observes that “Other messaging apps are focusing on driving mobile commerce via chatbots, like Facebook Messenger, or official accounts, like WeChat… The downside of Snapchat’s entertainment approach is it increases its reliance on advertising as its sole source of revenue.”
Secondly, the Snapchat IPO will only give you ‘pseudo-ownership’ in the firm because the firm has three different classes of shares and it is only selling its “Class A” shares during the IPO. The Class A shares comes with zero votes; hence, you practically won’t have any say on how the firm is to be managed irrespective of the number of shares you buy.
In fact, only Snapchat’s CEO Evan Spiegel and co-founder Bobby Murphy have Class C shares, which gives them 88% control of the firm. Hence, you should only buy Snapchat if you are convinced that Evan Spiegel and Bobby Murphy will be able to make decisions that will propel the company forward without eroding shareholder value.