With an IPO that could happen as early as March, investors are anxious to learn more about the Snapchat valuation. Right now, the valuation is reportedly $25 billion, but it could climb to $40 billion by the time the IPO debuts.
And this massive valuation is making Snapchat one of the most hyped public offerings on Wall Street.
However, a large valuation alone doesn't mean you should invest in the Snapchat IPO...
So before Snapchat stock starts trading, we wanted to make sure our readers were prepared for the Snapchat IPO date.
Here's everything you need to know about Snapchat...
How Snapchat Works
Snap Inc. is the parent company of Snapchat, which was founded in 2011.
Unlike other social media sites, Snapchat is an entirely mobile-based app, so you can only access it from your smartphone.
The app allows users to send videos and pictures with different filters and animations. And after a message is viewed, it will disappear in a matter of seconds.
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From Snapchat's IPO filing, we know now that the Snapchat app has roughly 160 million daily active users (DAUs).
And this growing user base is allowing Snapchat to rapidly increase its advertising revenue...
How Snapchat Makes Money
In its IPO filing, Snapchat said it generated $404.5 million in revenue for 2016.
And that money comes from two main sources: Sponsored Lenses and ads.
Through Sponsored Lenses, advertisers pay to create filters for pictures and videos. For example, 20th Century Fox paid for a lens to promote "The Peanuts Movie." Snapchat users could add characters like Woodstock and Snoopy to their pictures.
A lens runs for 24 hours and can cost anywhere from $100,000 to $750,000.
Snapchat also makes money from placing ads in its Snaps. Through the ads, advertisers can direct users to videos, articles, or a mobile website.
Because of these growing revenue sources, Snapchat is expected to generate between $936 million and $1 billion for 2017.
By 2018, Snapchat is expected to generate $1.76 billion in revenue.
But also keep in mind that Snapchat isn't profitable yet. The company recorded a net loss of $514.16 million in 2017.
If you're still considering investing in Snapchat stock, here's how you play the IPO...
How to Play the Snapchat IPO
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IPOs aren't designed to make retail investors money.
When a stock debuts through an IPO, retail investors don't have access to the stock at the IPO offering price. Only wealthy and institutional investors get this luxury.
For example, wealthy insiders bought Twilio Inc. (NYSE: TWLO) stock for $15 per share before it went public on June 23, 2016. And when retail investors were finally able to buy TWLO stock, they had to pay $23.99 per share.
That means big banks and large institutions made a profit of nearly 60% when the stock first started trading.
But if you still want to play the Snapchat IPO, Money Morning Director of Technology and Venture Capital Research Michael A. Robinson has a strategy.
"I generally tell retail investors to avoid buying an IPO at the open because the insiders have already made all the money available at the debut," Robinson told me.
"My exception to this rule is to put in a limit order that is fairly tight from the offering price. Otherwise the risk is you buy at the top and then go upside down. That's a big risk to carry with a new issue that hasn't hit the lock-up date," Robinson said.
If you have more questions about the Snapchat IPO, make sure to check out our full Snapchat stock guide.
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