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The Next Big IPO?

The Next Big IPO?

“How weird is this?” wrote my friend “O,” who is now traveling through Southeast Asia on a rock-climbing adventure.

I’ve been following O’s progress pretty much in real time as she’s gone from country to country.

It’s not just me who’s been doing this. All of our climbing group has been doing the same thing. And the reason we’re able to do this is because of an app called Snapchat.

If you don’t know about Snapchat, it’s an app that you use on your smartphone. The big thing with Snapchat is that it’s based primarily on video and pictures. It’s like a mix of Facebook, YouTube and Twitter mashed together.

Snapchat is incredibly popular among millennials, such as my friend O, who use it to keep a record of the cool stuff they are doing … while also keeping their friends, family and others up to date and simultaneously providing some moments of entertainment, information and education.

Now, Snap Inc., the parent company of Snapchat, is about to have its initial public offering (IPO), meaning you’ll be able to buy shares for the first time. And investors around the world are wondering if they should buy Snap shares when this happens…

The Millennial Mega Trend

The key thing that investors are going to be looking at is if the Snapchat app can continue to keep its millennial users engaged. Millennials are Americans between the ages of 18 and 34.

Right now, Snapchat users 25 and older use it about 12 times per day, spending about 20 minutes a day on average on the app.

And users younger than 25 check into Snapchat more than 20 times per day, spending on average over 30 minutes a day on the app.

Those are incredible numbers when you consider that Facebook Inc., which owns Facebook, Instagram and WhatsApp, gets its users to spend 50 minutes a day on average on all three apps put together.

Just so you have some context, 30 minutes per day is more time than people spend reading (19 minutes), playing sports or exercising (17 minutes), or socializing (four minutes). The only activities that Americans spend more time on than Snapchat are watching TV (2.8 hours) and drinking and eating (1.07 hours).

Massive Profits Ahead?

In 2016, Snap is estimated to have generated $400 million in sales based on 160 million users. Analysts at eMarketer estimate that sales could hit $1 billion in 2017.

Snap has tried to sell Snapchat sunglasses that record video to be put on the app. However, the company’s primary source of sales right now is through advertising on the Snapchat app. Based on my sources, Snap is expected to be valued between $20 billion and $25 billion when it goes public.

Now, for me, the most direct comparison for Snap is Google’s YouTube, since it’s also video-based and driven by users. YouTube was acquired by Google in October 2006 for $1.65 billion.

Wall Street analysts estimate that YouTube is going to generate over $27 billion in sales by 2020, up from over $10 billion in 2017. That’s incredible growth when you consider that in 2006, when Google bought YouTube, it generated just $15 million. One final thing on this: Analysts estimate that YouTube would be worth in excess of $90 billion today if it were a stand-alone company.

Is Snap going to experience similar growth in the years ahead as YouTube did in the past? That’s the question investors are going to have to figure out if they want to buy into the Snap IPO.

Oh Snap!

One indication that Snap may be able to grow quickly is the fact that time being spent watching online videos continues to go up. In 2011, it was 20 minutes a day. In 2017, this is expected to hit one hour and 20 minutes a day. So, Snap is clearly in a very fast-growing part of the market.

Now, this doesn’t make the Snap IPO a sure thing. That’s because IPOs tend to be volatile and tricky to trade. And there’s simply no way to be sure if Snapchat can keep its users engaged for the long term.


Paul Mampilly
Editor, Profits Unlimited

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