Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing

Snap Inc. IPO Could Be Valued at $30 Billion Because of One Demographic

Snap Inc. IPOBecause Snapchat dominates one key demographic, the Snap Inc. IPO could be the biggest public offering since 2014.

Snapchat could go public as soon as March 2017, with a valuation of $30 billion. That would make it the biggest U.S. tech IPO since Facebook Inc. (Nasdaq: FB) was valued at $104 billion in its 2012 IPO.

But value investors are having a hard time justifying the lofty valuation…

That's because a $30 billion valuation means Snapchat stock could trade for 30 times its 2017 projected revenue. In comparison, rival Facebook traded at 19 times its projected earnings in its 2012 IPO.

So why is Snapchat being valued at more than 30 times revenue? It's because the company has created a huge following with the social media industry's top demographic.

Here's a look at the key demographic that could make the Snap Inc. IPO the biggest of 2017…

One Demographic Pushes Snapchat to $30 Billion Valuation

According to Pew Research, there are now more millennials (ages 18-34) in the United States than baby boomers (ages 51-69). With 75.4 million millennials in the U.S. as of April 2016, this is a massive audience for advertisers to target.

And most of the age group is on Snapchat…

Right now, 70% of 18- to 24-year-old U.S. residents with smartphones use Snapchat, according to Bloomberg. Also, 41% of 25- to 34-year-olds used Snapchat as of June 2016.

Brilliant: This 35-Year-Old Printer Could Make You $914,565 Richer!

That's a massive increase from the 6% who used it as of June 2013.

Companies like Under Armour Inc. (NYSE: UA), BMW, Gatorade, Taco Bell, and T-Mobile are all advertising on Snapchat to reach younger demographics.

For example, 20th Century Fox created a "Sponsored Lens" on Snapchat when it launched "The Peanut Movie" in 2015. Snapchat users were able to take selfies and add characters like Snoopy to their pictures through the Sponsored Lens.

And Snapchat charges big bucks for Sponsored Lenses….

According to Business Insider, Sponsored Lenses cost between $100,000 and $750,000 for just a 24-hour ad. For 2016 alone, eMarketer projects branded lenses and ad-like invitation geo filters will generate $102 million in revenue.

And these advertisers trying to reach Snapchat's 150 million daily active users (DAUs) have caused revenue to skyrocket.

Snapchat reportedly generated $3.1 million in revenue in 2014, and that number climbed to $59 million in 2015.

That's an impressive increase of $1,803%.

And this is just the beginning…

Snapchat stockSnapchat is projected to increase its DAUs to 217 million (an increase of 44%) by the end of 2017. And with more companies trying to reach the growing audience, Snapchat is projected to earn between $936 million to $1 billion for 2017.

Revenue in 2018 is expected to climb even higher, potentially reaching $1.76 billion.

It's true that Snapchat's coveted user base will make the company a lot of money.

But does that mean Snapchat stock is a good investment?

Here's what you need to know before the Snapchat IPO

Should I Invest in the Snap Inc. IPO?

Join the conversation. Click here to jump to comments…

Leave a Reply

Your email address will not be published. Required fields are marked *


Some HTML is OK