Because 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.
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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 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?
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According to Money Morning Chief Investment Strategist Keith Fitz-Gerald, IPOs are extremely dangerous for retail investors...
"IPOs are little more than a get-rich quick scheme with the odds stacked so heavily against you that house odds in Vegas seem downright conservative by comparison," Fitz-Gerald said on Nov. 21.
You see, retail investors aren't able to buy Snap Inc. stock at the same price as large institutions and wealthy investors.
Take the recent IPO from Twilio Inc. (NYSE: TWLO), for example. Wealthy insiders bought shares of TWLO for $15 per share.
When TWLO stock debuted to the public on June 23, it opened at $23.99 per share. Twilio's closing price for the day was $28.79, which means investors could have made a profit of 20%.
But the real profits were made by big investors. By the end of the day, wealthy investors and large institutions made a profit of 91%.
"Silicon Valley venture capitalists have put a few billion into Snapchat privately (after three or four earlier rounds of financing), and they're counting on an IPO to cash out at 10 or even 20 times their money," Fitz-Gerald said.
Fitz-Gerald says the only way to play the Snap Inc. IPO is "as a purely speculative undertaking."
We know that our readers still may have a lot of questions about investing in Snapchat and buying Snapchat stock. That's why we made this helpful guide where we answer the most common questions. You can find it, right here.
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