The Wall Street Journal reported yesterday (Tuesday) paperwork for the Snapchat IPO filing was confidentially sent to the SEC. Now investors are anxiously awaiting their chance to own shares in the biggest tech IPO in years.
And if Snapchat does go public in 2017, Money Morning Director of Tech & Venture Capital Research Michael A. Robinson believes it will be bullish for the entire tech industry and IPO market.
"I'm hoping to see a very successful IPO since Snap Inc. is a high-profile unicorn with a pre-market valuation of $17.8 billion at its last round. So, if reports of a $25 billion valuation at the open are true, that's great for the entire tech industry, the IPO market, and the overall value of the social networking market," Robinson told me.
Part of the reason the Snapchat IPO is so exciting for investors is because the company reached that $25 billion valuation despite launching in 2011. Here's why Snapchat got to that valuation so quickly...
Why Snapchat Could Be Valued at $25 Billion
Snapchat has become so valuable because of its large user base of millennials (born between 1980-2000) and teens.
This is a highly sought after customer base for advertisers. According to Goldman Sachs Group Inc. (NYSE: GS), there are 92 million millennials in the United States, compared to 61 million in Generation X and 77 million baby boomers.
Currently, Snapchat is used by 70% of 18- to 24-year-old Americans with smartphones, according to Bloomberg.
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The user base for 25- to 34-year-olds is also increasing. As of June 2013, only 6% of that age group used Snapchat. That number jumped to 41% by June 2016.
Snapchat users are also highly engaged with the app.
Snapchat users spend close to 10 minutes a day on the app. In comparison, Instagram users spend just 6.4 minutes per day, according to investment company Cantor Fitzgerald.
And the biggest reason the social media app could be valued at $25 billion or more after the Snapchat IPO filing is its revenue growth rate.
Here's how fast revenue for Snapchat can grow over the next two years...
Revenue Is Soaring Ahead of Snapchat IPO Filing
In 2014, Snapchat reported revenue of just $3.1 million. But in 2015, that climbed to $59 million, which is an increase of 1,803% in just one year.
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And investors are hoping that's just the beginning of Snapchat's massive revenue growth...
According to Bloomberg projections, Snapchat could generate $1.76 billion in revenue by 2018. From Snapchat's 2014 revenue totals of $3.1 million, that's an increase of 56,674% in four years.
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With estimated revenue of nearly $1 billion for 2017, that means a $25 million valuation would price Snapchat stock at 25 times its revenue for 2017.
That will seem pricey for value investors. But Facebook Inc.'s (Nasdaq: FB) shares were priced at 19 times its estimated revenue for its IPO.
And because Snapchat has a high valuation, investors are worried it will have a high P/E ratio.
But there are other successful tech stocks with high P/E ratios...
Currently, Amazon.com Inc. (Nasdaq: AMZN) has a P/E ratio of 171.62, and the Netflix Inc. (Nasdaq: NFLX) P/E is even higher at 308.17.
The Snapchat IPO could happen as early as March 2017. And ahead of one of the most hyped IPOs on Wall Street, our readers have been asking if Snapchat is a good investment.
That's why we put together this guide with everything you need to know about investing in the Snapchat IPO, and Robinson also provides how to play the Snapchat IPO.
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