A Snapchat IPO Maybe Difficult At $19 Billion Valuations

  • Snapchat is reportedly looking to raise $500 million.
  • Snapchat valuations could touch $19 billion.
  • Snapchat valuations are well beyond those seen during the Whatsapp acquisition.
  • Snapchat valuations seem to be very unrealistic.

In Jan 2014, Spotify reportedly decided to raise $500 million, putting a lid on talks of a Spotify IPO, with all that cash in the tank. Less than a month later, Snapchat, another 2015 Tech IPO candidate, is believed to be seeking funding, for a similar amount. Reports suggest that Snapchat could be valued as high as $19 billion following its upcoming round of funding. The Snapchat IPO could well be delayed, but should you wait at all?

Trivia: Snapchat is raising $500 million, and if the company does get valued at $19 billion, Snapchat will be the third most valuable tech startup that hasn’t gone public yet, behind smartphone maker Xiaomi, valued at $45 billion and, Uber, valued at $40 billion.

Will The Snapchat IPO Be Delayed?

Talks of a Snapchat IPO were rife going into 2015, as Snapchat hired Imran Khan, the man who led the Alibaba IPO. However, Snapchat raised close to $500 million at the end of 2014, and is supposedly looking to raise another $500 million. There’s no official word on this, but on the face of it, it does seem like the Snapchat IPO may not take place very soon.

A Snapchat IPO May Not Be Easy

Snapchat May Not Be Making A Lot Revenue

Even in this seemingly insane world of outrageously valued tech companies, there is a method to the madness. If you are one of those companies that can deliver eye-popping revenue growth, then you might just have investors eating out of your hand; and apparently, not a lot of them care too much about profits. However, if you can’t woo them with revenue numbers, things might just get a tad difficult.

Snapchat began advertising in October 2014, and there’s no information on how much revenue it managed to rake in. Snapchat is believed to be working on other means to monetize its users, like enabling money transfers, and adding curated content and videos from the likes of CNN and ESPN to engage its 100 million plus users. However, there’s no official word on how much the company earns in terms of revenue.

Having started monetizing its users less than six months ago, it’s unlikely that Snapchat will be making enough money to go public.

Trivia: Tech giants Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL) wanted to acquire Snapchat at valuations of $3 billion and $4 billion respectively, back in 2013. Facebook then moved on to working on competing apps like Poke and Slingshot, before acquiring Whatsapp for $19 billion. (Also see: Facebook stock analysis and Google stock analysis)

That apart, investors also seem to be taking cash burn rates pretty seriously, as we saw with the Box IPO, where the company’s heavy losses came in for a lot of criticism. According to a report Snapchat losses stood at GBP 20 million, or $30.8 million a year.

Snapchat Valuation

At $19 billion, Snapchat valuations tower head and shoulders above a lot of tech companies that make a decent amount of money. In fact, some of these companies are also quite profitable.

To put things into perspective, even with its outrageous valuations, Twitter (NYSE:TWTR) still makes a little over $1.4 billion a year, and is valued at a little over 1.6 times Snapchat valuations. So, if Snapchat isn’t making close to a billion Dollars a year, a Snapchat IPO will be very difficult to manage.

Weighed in terms of user base as well, Snapchat valuations seem out of whack. Take for instance Whatsapp, which by co-incidence, was acquired by Facebook for $19 billion, had 450 million MAUs at the time, implying a value of $42 per user.

Snapchat valuations show a complete disconnect from this metric as well. With its 100 million MAUs, Snapchat is valued at about $190 per user, more than 4 times as much as Whatsapp.

Trivia: Yahoo (NASDAQ:YHOO) was one of the investors in Snapchat's previous round of funding in Dec 2014, when it raised $485 million. (Also See: Yahoo stock analysis)

To sum up, the Snapchat IPO might be delayed, and that might just be a good thing for all involved. Unless Snapchat starts to rake in some solid revenue, these valuations appear to be unrealistic.

You can see our coverage of upcoming IPOs in 2015, like the Etsy IPO, the Square IPO, the Pinterest IPO, the Dropbox IPO, the Airbnb IPO, the Uber IPO and more, if you’re evaluating these 2015 IPO candidates.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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