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Snap Up Snapchat Stock?

By Linda McDonough on December 6, 2016

Underwriters snapped to attention when social networking company Snap said it wanted to go public next year. Snap’s product is Snapchat, the hottest social networking tool du jour.

The app, founded in 2011, is the brainchild of three Stanford undergrads. Snapchat letsusers to send a picture or video clip with a caption or doodles to friends. The most beloved feature of “snaps” is that they disappear 10 seconds after being viewed.

Although papers have yet to be filed, financial news outlets say the company is targeting a March 2017 IPO. With the growth that Snap is experiencing and the dearth of hyper-growth deals, the stock is likely to soar. Snap is already being hailed as the biggest deal of 2017, despite the fact that its financials are still secret.

That said, the chances of investors like us getting a slice from our broker is less than slim (though it doesn’t hurt to ask). But the IPO is worth keeping an eye on in case there’s a dip after it launches.

While it’s unlikely Snap’s growth will hit a speed bump immediately post IPO, there are many new issues whose valuations dip after going public. Believe it or not, Facebook was one. After going public at $38 in May 2012, its stock dropped to $18 on one bad quarter. I’m always scouring the IPO pipeline for broken deals or simply great values. I’ve got one in the Profit Catalyst portfolio that is up 24% since early October and am snapping to attention for new ones.

Here’s what we know about Snap so far:

The company filed initial public offering documents with the SEC under the 2015 JOBS (Jumpstart Our Business Startups) Act. This act lets companies with less than $1 billion in revenue file initial documents with the SEC that are blocked from public view; and allows the company to start talking to investors without public scrutiny.

And while the JOBS act allows for these “secret hush” filings, discussion on Wall Street is roaring over the possible valuation for one of this super-growth unicorn to go public.

Analysts speculate Snap’s valuation will hover around $35 billion.

Snap’s revenue growth is exploding and helps justify what looks to be a valuation higher than Facebook’s when it went public. News outlets note revenue is on track for $1 billion in 2017, up from $350 million in 2016 and $59 million in 2015. This growth is much faster than Facebook’s, whose revenue was growing over 100% at the time of its IPO.

Not Your Grandfather’s App

In a world of worry about the permanent trail left by their Internet behavior, teens loved the quick death of their Snapchat communications. Most have adopted it as their preferred communication modicum. Facebook and Instagram (bought by Facebook in 2012) are now regarded as their parents’ apps. Facebook is used primarily for homework groups and Instagram, as a tool to display artsy photos. In fact most teens now have “finstagram” accounts (fake Instagram) where they share their true selves with a select and private group of friends.

Facebook likely saw the budding potential of Snapchat and made a bid for the company in 2013. Snap execs turned their noses up at the $3 billion price offered and haven’t turned back. Snap’s most recent funding round valued to company around $22 billion.

Snap has been brilliant with its advertising methods. Instead of the traditional route of inserting ads into a Facebook feed or a website, Instagram has added branded filters and screens that users choose to layer on their videos and pictures to promote those brands.

Taco Bell, for example, offered a screen that allowed Snapchat users to turn their heads into talking tacos on Cinco de Mayo. Tiffany’s offers a filter with its iconic robin’s egg blue color and logo that can be added to a photo when the user is in a Tiffany store. Advertisers love the “buy-in” by young users who willingly help promote their brands. Snap is happy to collect the fees charged to access its pool of over 100 million daily users.






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Here’s What’s Really Going to Crush the Market

Most folks understand the basic concept of inflation… things cost more money. But tragically, most don’t understand the real implications of what it means for their financial future. 

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