Credit: TechCrunch

Snapchat's planned IPO is surely a long way off

The nascent startup's sky-high valuation ignores its lack of a proven business model.

by Jack Torrance
Last Updated: 04 Mar 2016

Snapchat's come a long way since sensationally turning down a $3bn (£2bn) takeover offer from Facebook founder Mark Zuckerberg. At the time the move seemed utterly bizarre. Naysayers slammed the photo-sharing app's founder Evan Spiegel, then aged just 23, for what they saw as arrogance or naivete in turning down such an enormous sum for a company that had literally zero revenues.

Today it's increasingly beginning to look like Spiegel's gamble could actually pay off. Subsequent funding rounds have reportedly valued the four-year-old company at more than five times Facebook's offer. That might be indicative of a dangerous technology bubble, but it does show that at least some investors (including Chinese ecommerce giant Alibaba and internet vets Yahoo) do have faith in Spiegel to deliver the goods.

That's presumably because he's showed Snapchat has a seriously dedicated following. According to a recent interview with Bloomberg, the disappearing messaging app claims more than 60% of 13-34 year old Americans are active on the service, and that it has 100 million users overall, who view a total of more than 2 billion videos per day - a pretty extraordinary number if accurate.

That's a solid audience for it to monetise and it's begun to do that a little with sponsored videos. But it has pledged not to put ads into the private messages that presumably make up the bulk of the app's traffic, so will need to find a better way of making cash if it wants to make serious profits. 

Yesterday Spiegel admitted he's not keen on the idea of selling up to a trade buyer like Facebook ever because staying independent is 'more fun'. But he also said he plans to float the company at some point. 'We need to IPO, we have a plan to do that,' he said at a Recode conference in San Francisco. 'An IPO is really important.'

The scrutiny of being a big listed company will be difficult to reconcile with the 'fun' of being independent and so must surely be a fair way off. Spiegel himself admitted that the tech industry is due a 'correction' because of inflated valuations - a bursting of the bubble in other words. For that to happen during or shortly after the process of a Snapchat IPO could be absolutely catastrophic.

He could try and rush to the public markets as soon as possible of course, but that's unlikely to land him the valuation he likely desires. Institutional investors are as guilty as anyone of getting swept up into bubbles, but they are surely going to want to see a greater level of revenues and profits and a strong track record of performance before stumping up the big bucks.

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