Financials and Share Price Estimates of Snap IPO

Financials and Share Price Estimates of Snap IPO

On February 2, 2017, the picture app Snap had filed their S-1 filing, but a week later they amended their S-1 filing on February 9. They had added that their competition had impacted the growth of their user base and also added a disclosure that there is a minimum 5 year commitment with Amazon Web Services of $1 Billion for their services.

A few 20 year old Stanford students had developed and deployed Snap in 2010, which allowed their users to send disappearing pictures that had a preset time set by the sender. In two years, their user base grew to a million users. After another 18 months, many new features like stories, replay, chat and smart filters were added due to which Snap reached 50 million users by 2014.

As of now, a 158 million daily active users use Snap spending an average of 25 minutes to 30 minutes per day. These users snap an average of 16 pictures per day and 25% of the users post their stories daily. With this level of engagement in a mobile app, which is 2 times the engagement that Instagram enjoys and 20 times the engagement Twitter’s app enjoys, this app is now being compared to the desktop centric sites.

These sites are YouTube with an average of 40 minute per user daily and Facebook with an average of 35 minute per user. A physical product has also been introduced by Snap called Spectacles, but determining what meaningful augmentation it has to their mobile app business is too early to try and determine

The user base of Snap is growing fast, but now the growth is slowing a bit. The cost of keeping the user base is increasing day by day and higher than other platforms. Facebook, at its IPO, had 526 million active users and there was a 9% growth each quarter, which had a capital base of 3.5 billion dollars at IPO or a daily user invested capital of $7. Twitter had a 100 million active users with IPO of $ 1.1 billion i.e. approximately $10 capital/ daily user.

Snap is well below the scale of Facebook at IPO with its 158 million daily user base, but is 1.5 times the size of Twitter. Snap’s rapidly slowing growth quarter by quarter, with only 4% in recent fourth quarter and the invested capital of $ 2.7 billion to get the user base with $17 per user makes the share buyers a little confused.

But Snap has seen the fastest growth and has a lot more potential in the coming years. After all, it just had the first quarter with a gross profitability in quarter four the last fiscal year. Only time will judge whether the users of Snap are profitable enough to cover their acquisition costs and service costs.

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