The IPO of Snap is finally arriving and I can't wait for it to end the speculations about the value of the company. I have given an outlook last August stating my doubts about the business model of Snapchat and the limits the company is facing also mentioning the market power which Facebook pressures on Snapchat.
The current valuation is estimated to arrive at 20.850.000.000$ with a 15$ per share which results in around 1.480.000.000 shares. I wrote those numbers down to proof myself once again how ridiculous this valuation is based on Snapchats user base and its growth numbers. Just as a comparison Instagram grew its user base from June 2016 to December from 500m to 600m which is not just higher in absolute numbers but also in relative.
Besides that the current price to sales ratio results around 55x and more depending on the assumed price in that IPO. Just to put this into relation. Facebook currently trades at 13x price to sales ratio and is actually making profits while Snapchats P/E ratio is not indicating anything due to the loss of 515m which is 38% more than the year before.
I have no clue and no hint how this IPO is valued but my suspicion is that a large group of investors have no idea what Snapchats business model actually is, how it works and how terrifying Marc Zuckerberg is in this whole scenario promising to copy Snapchats services if necessary. Since Snapchat doesn't own any patents or licenses which would secure them from Zuckerberg, he is able to crush Snapchat with a far bigger user base which contains over 1.6bln users across all platforms.
I don't believe in Snapchat and I don't believe in Snapchats IPO but I do believe that it is the perfect moment for Spiegel and for the early private owners of Snapchat to exit their investment with this IPO and to sell a completely overvalued company to the public before it becomes evident that Snapchat might be the biggest unicorn which we have ever seen on the NYSE in the Tech Sector.
I do personally believe that the proper valuation of Snapchat is around the number Facebook was ready to pay for it a few years ago. The rational point of view is the fact that Zuckerbergs M&A team might have the best industry insights when it comes to social network services due to their information they create inside their company from a significant user base. Those 3bln which Spiegel rejected might even have included already a premium Zuckerberg was ready to pay for an additional monopolistic advantage which disappears as Snapchat remains a standalone. Nevertheless assuming the 3bln as a serious price the Snapchat shares should trade at around 2$ instead of the targeted 15$ which is an overvaluation of 7.
I am definitely going to short that IPO and I would recommend you to do the same since the money you will invest at 15$ a share will not be lost it will be in a different pocket and spend on cars and yachts while you will remain asking yourself how it comes that nobody is using Snapchat anymore while posting its food and selfies on Instagram Stories or WhatsApp.
Greetings and Happy Trading