Snapchat’s parent company, Snap, Inc., is going public next year. And with an IPO that could put the ephemeral messaging service provider’s value at between $20 billion and $25 billion, some investors may wonder whether the company is priced too high for its own good.
After all, with 2017 revenue expected to reach $1 billion, Snap Inc. would be trading at 25 times the amount it pulls in. The last thing potential investors want to see is for the company to turn into another Twitter that falters under the weight of an outsized valuation.
According to Carolyn Saacke, COO of Capital Markets at the New York Stock Exchange, it’s just too early to tell if Snap Inc. is worth its estimated cost of entry.
Saacke explained her hesitation to take a stand on the app’s valuation during the EY Strategic Growth Forum in Palm Springs, Calif.
“You’re pricing it for what the new investor base is willing to buy,” she said, “and they are looking at what the future growth prospects are based on what they are learning on the roadshow through discussions with the company and what’s out there in terms of public markets.”
Generally speaking, Saacke said that companies that go public have to provide incentives for their early investors.
“For that company I can’t comment, but certainly it’s a question … In terms of for a long-term IPO market, those investors in that new public company need to be happy and they need to be satisfied that what they did is the right thing and that remains to be seen,” said Saacke. “It’s a great question, and I think once we start seeing the public documentation everyone’s going to have that question, as well.”
Still, some believe Snap’s valuation is more than justified. In an interview with Yahoo Finance, Charlene Li, CEO and founder of Altimeter Group, said the company’s projected 2017 revenue numbers are, “really good quality revenues,” adding that a 20 to 1 ratio of valuation to revenue is solid.
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Email Daniel at firstname.lastname@example.org; follow him on Twitter at @DanielHowley.