The tech industry has been under fire for the lack of mergers and acquisition activity in the past two years. With many private tech firms with valuations higher than $1 billion, otherwise penned as unicorns, there has been scrutiny from markets surrounding these highly regarded start-ups. However, recently, Snap Inc., the company behind the popular Snapchat app, (NYSE: SNAP) made headlines on all major news outlets with the possibility of an initial public offering at the end of 2016. What seemed like welcoming news to Wall Street banks across Manhattan was not so welcoming; rather, many firms shared mixed feelings about the potential of Snap's IPO.
There are two major reasons that Wall Street has mixed feelings about Snap Inc. The first concern that Wall Street has is the valuation of about $19 to $22 billion attached to the company and its share price possibly being overvalued. Fortune Magazine reports that the closest valuation that Snap Inc. resembles is that of Twitter Inc. (NYSE: TWTR) when it sought a $14 billion valuation. At the time of Twitter's IPO, the company was not profitable, a similar narrative to the current situation of Snap. Yet, in retrospect, shareholders have lost money being invested in Twitter, given the state of the company today, which does not resound too well for Snap. The second concern surrounding Snap is that there is an identity issue. Investors are skeptical about Snap because the company is not a traditional tech or media company. On Business Insider, Evan Spiegel, the Founder of Snap recorded a video for the roadshow, specifically mentioning that "Snap is a camera company," and signaling that the company business model focuses on hardware. Spiegel, then, cuts to the chase and also labels Snap as a media company because the main focus of the company is content creation. For investors, the line does not seem so clear at all and that's when the skepticism starts to happen.
Wall Street Journal shares that the roadshow kicked off in London on Monday, February 20th and is poised to be priced and listed on the New York Stock Exchange by March 1st. The shininess of Snap is now starting to wear off as the company decided to sell its Spectacles online, instead of having people wait in line at absurd hours at secret locations. A fad that was deemed a "hit" at the peak of the holiday season in 2016 is now merely a novelty that has been dwindling in the eyes of the public. As more and more information is revealed about Snap, there is much to look forward to, as volatility surrounding the company is high.
- http://fortune.com/2017/02/03/snapchat-ipo-expensive-twitter/
- http://www.businessinsider.com/snapchat-roadshow-snap-executives-explain-why-investors-should-buy-ipo-2017-2/#snap-is-a-camera-company-begins-spiegel-we-feel-like-were-really-at-the-beginning-of-what-cameras-can-do-1
- https://www.wsj.com/articles/snap-sets-valuation-at-19-5-billion-to-22-2-billion-sources-say-1487221327
