Snap Inc. is the owner of the famous app for messaging Snapchat. It has recently lowered its valuation range on Thursday. The reason for this was increasing concerns amongst the investors over the slow growth and the business model that was not proven.
The initial offering made by the company early this month was expected to be in the range of 20 billion dollars – 25 billion dollars. But on Thursday, the company said that currently they have set the target valuation in the range of 19.5 billion dollars – 22.3 billion dollars.
The investor feedback has been reflected by the lower valuation. Snap now wishes to make sure that the demand for company shares in the market is sufficient so that trade is high on the first day.
The IPO filing stated that in the last quarter of the year 2016, the growth was nearly flat in terms of new users who were active. Roughly taking average, Snapchat houses 158 million users on a daily basis.
Duff & Phelps Managing Director, Yann Magnan said that Snap has been demonstrating decreasing growth even before reaching the break-even point. He also said that the IPO revealed that the IPO growth of Snap must exceed that of Facebook if it wishes to compensate for the shortage of the profit in a short term. Snap has estimated its valuation to 49 times of its revenue and Facebook has estimated about 27 times.
Some investors also said that Snapchat has an interface, which is difficult to comprehend for the new users and this reason is likely to make the non-users to avoid it and choose easy platforms like Facebook and Twitter.
However, the supporters of Snap argue and say that Snap has a limited user base and thus it provides more security and loyalty and creates more opportunity to make money for the company.
Snap witnessed a loss of 514.64 million in the year 2016, which increased from the loss of 372 million dollars in the year 2015.
With much of the revenue of Snap being generated from advertising, it will enhance its services by using the cloud computing platform. Snap will be paying Google a sum worth 2 billion dollars for the next 5 years to avail these services.
Investors are also not happy with the 3-share structure of the Snap class and have expressed their concerns over it. This structure dissuades to provide any voting rights to the IPO investors. Bobby Murphy and Evan Spiegel, the co-founders of Snap have 10 votes on each share while the other investors have only one vote per share.