Snap, owner of the popular messaging app Snapchat, yesterday set a lower-than-expected valuation for itself amid mounting investor concerns over the company’s still unproven business model, slowing metrics and tight founder control.
The company, which filed for an IPO earlier this month, was widely expected to be valued at between $20bn and $25bn (€18.75bn €23.5bn) but fell short by targeting a valuation between $19.5bn and $22.3bn ahead of its marketing road show, due to start on Monday in London.
Investors have been poring over the filing for Snap’s upcoming IPO to assess whether the still- unprofitable company will be the next Facebook, which has figured out how to make money from its social media platform, or if it will be more like Twitter, which is struggling to achieve the same goal.
“I think that the lower proposed valuation reflects feedback from institutional investors that the higher valuation is hard to justify. The concerns are about Snap, not the IPO market,” Jay Ritter, IPO expert and professor at the University of Florida, said.
With platform-hopping millennials as its prime customer base and constantly evolving competition, the fact that Snapchat’s new user growth has already begun to slow concerns investors, sources said.
New active user growth was mostly flat in the early part of the last quarter in 2016, according to the IPO filing. Facebook’s Instagram, which had 600 million users as of late 2016, has introduced its own form of disappearing video content. On average, Snapchat has 158 million daily users.
“Snap is already demonstrating decelerating growth before they have managed to break even,” said Yann Magnan, managing director at Duff & Phelps.
Snap, which generates most of its revenue from advertising, also saw its loss widen to $514.64m in 2016 from $372.89m a year earlier. Much of the company’s expenses are for hosting fees it pays to cloud computing companies such as Google to use their infrastructure for its data.
It will pay Google $2bn over the next five years to use its cloud computing services. Investors have also raised concerns over Snap’s original three-share class structure, which gives no voting rights to new investors. n Reuters
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