2017's Biggest Tech IPO

The Snap Inc. (Snapchat) rumor mill was at full cry last week when the Wall Street Journal reported that the 4 year old tech company is preparing for an early 2017 IPO. There has been talk about it for some time, and this presents an interesting choice for investors. While nothing is confirmed, I’ll take a look at this under the assumption that they’ll launch a March 2017 IPO at their latest valuation of 25 Billion dollars. Is it a good investment? It’s important to look at both sides. On the positive side, the company has posted big numbers through several venture capital rounds and seen backing from high value players like Alibaba Group, who invested a cool $200 million in Snapchat in the spring of 2015. Snapchat clearly has high level interest, and has already rejected a $3 Billion buyout bid from Facebook. Polls have shown a majority of teenagers choosing Snapchat as their preferred social media site, and at 10 Billion video views a day the company is showing healthy growth. There are plenty of reasons to label this the biggest Tech IPO in years. Morgan Stanley and Goldman Sachs seem to agree, as they’ve reportedly been enlisted to lead the launch. However, I’m not totally on board quite yet. For me, this bears too many similarities to the meltdown that is Twitter. The company launched an IPO that minted several hundred millionaires overnight, but for the common investors who purchased at market opening, the well had run dry. By market close the underwriters at Goldman Sachs ran away with a profit upwards of 70% and the everyday investors were left with a slight drop in the opening value of their shares. It will probably be those same people at Goldman rolling in the dough come Snapchat’s initial offering.

In the time since, Twitter has been seeing dark times. While the stock initially started to climb (peaking at $65 a share), it suffered the inevitable fate of most companies who rely on a largely millennial user base- the fad began to die. If you recall from a few lines up that Snapchat is currently the hottest social media app among millennials, you can guess who it wrestled that title away from. Twitter relies on short 140 character tweets, and Snapchat on 10 second videos. As someone who used both apps for years and has witnessed the mass exodus of my peers away from Twitter, there are stark similarities between the two platforms. This to me serves as a warning. As of the time of this article, Twitter has just suffered another setback. Their desperate search for a buyer is coming up empty handed, this morning the CEO of Salesforce squashed the reports that the CRM Software company were going to buy out Twitter. This resulted in yet another tumble in their stock price, as shareholders watched an 8% fall and numbers rest at a far cry from that 2012 IPO. I believe Snapchat may end up in the same boat, this doesn’t look like a buy and hold stock. That could change though, amid plans unveiled that Snapchat will be releasing a line of Sunglasses, their first line of hardware. These glasses could make a splash, given the failure of Google Glass and the space open in the market for this type of technology. The glasses allow users to record video in a way that makes it look like it’s exactly from their point of view, given the dual 115 degree lenses. These may push Snapchat more into the mainstream and away from just millennials. It’s still too early to say, and I won’t be hopping on the bandwagon quite yet.