Don't SNAP up this IPO
Snap, the company behind SnapChat recently filed for its long awaited IPO (initial public offering). This means retail investors could now own a piece of the social media giant. The question is, should you?
An IPO is a gamble, while they often spike on the first day supported by the underwriters after that is anybody's guess. Facebook's was a debacle and the stock suffered for quite some time before tripling since then, Twitter continues to trade below the IPO price, while if we go further back the likes of Amazon could have made early investors quite wealthy. Then just imagine being in on Apple from the beginning. Of course it all comes down to the individual company.
So let's look into Snap in a bit more detail. The company reported revenue of $404.5 million in 2016, up from only $58.7 million the prior year, which is obviously quite impressive. However, the company also lost $514.6 million, even worse than the previous $372.9 million. Global average revenue per user rose 31 cents to $1.06 per user and they do have 158 million daily active users, both key measures in the social media world. This growth is slowing though and was actually halted last quarter.
Now for the real kickers, the company states that they may never be profitable. Why on earth would anyone invest in a company that may never be profitable? Isn't the whole point of being in business and investing in stocks to make money? If the company can't make money despite having so many daily active users and bringing in decent advertising revenue, then I don't see why I would choose them to give some of my investment dollars. To compound that problem, the shares do not carry any voting rights, so shareholders, no matter how large their position becomes, will not be able to force change in the company through their voting rights. This would be the only US listed company without voting rights for any shareholders. So anticipating a $20-$25 billion valuation for a company that is losing more money than it brings in annually in revenue, may never be profitable, and your investment doesn't give you a say in how the company is run. Making the early investors and private equity even richer at the risk and expense of the retail investors stepping in seems like the plan for this IPO. It may do well initially or maybe even longer term, but count me out. SnapChat made a name for themselves by making shared photos disappear in 10 seconds, I don't want them performing the same disappearing act with my money!
Day Trade Canada