Investors are unsure if Snap will be the next Facebook or the next MySpace
Snap is the parent company of popular app Snapchat and the company has an IPO planned. When the company originally filed its IPO it was expected to be valued at between $20 - $25 billion. Snap has now come back and lowered expectations for the IPO to the target valuation of between $19.5 billion and $22.3 billion.
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The valuation was reduced after initial investor feedback and was done to ensure that there was sufficient demand for shares in the company when it begins to trade on IPO day one. Snap has yet to turn a profit leaving investors scrambling to figure out if Snap will flop or be the next Facebook.
While social media giants like Twitter are still struggling to make money, Facebook has figured out how to squeeze money from its huge numbers of users. Reuters reports that the fact that user growth for Snapchat was flat in the early part of Q4 2016 concerns investors. Snapchat still has a huge number of active daily users with 158 million folks on the app each day.
"Snap is already demonstrating decelerating growth before they have managed to break even," said Yann Magnan, managing director at Duff & Phelps.
Some investors fear that Snapchat is harder for new users to take up and easy for those who don't use Snapchat to avoid.
"With Facebook you almost feel left out, socially, if you’re not on it. You may miss a picture or invitations. I don’t get the sense people feel they’re missing out if they’re not on it," said Chris Carter, portfolio manager for the Buffalo Growth Fund. Carter's fund hasn't yet made a decision on if it will buy shares in Snap.
In 2016 Snap posted a loss of $514.64 million , much higher than the $372.89 million loss for the previous year. Potential investors note that it's not rare for a new company to lose money, but it is rare for a new company to try an IPO at such a high valuation. Snap has valued itself at about 49 times the revenue it generates. Most of that revenue comes from advertising.