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What Would Snapchat's IPO Represent?

With Evan Spiegel hinting at an IPO, what could it mean for others?

8Jun

Snapchat has become famous for its secrecy. It was founded on the idea of being able to send an image that is deleted as soon as it has been seen by the intended recipient, so this has generally tended to filter through the rest of the company’s dealings too.

However, Evan Spiegel, the founder and CEO of the company has recently revealed that they are planning an IPO at some point in the future.

Following on from the IPOs of Twitter in 2013, Facebook in 2012 and Linkedin in 2011, they will become another huge social network to take the leap.

They are yet to announce any dates about when this is likely to happen, but Spiegel made clear that it is something that they are thinking about at the moment. On the back of a recent round of funding, the company was valued at $15 billion, with a potential value of $19 billion.

It currently has around 100 million active daily users and has begun to make ground in terms of advertising and partnerships with other companies to create even more content on the site’s discover feature.

Their current model falls on this as the primary money making division, with a few advertisements through timelines and occasionally through the main messaging aspect of the app.

So what does this mean?

A company valued at $19 billion who are yet to show strong money making ability beyond is worrying for the potential tech bubble that many have predicted. We have seen that there is genuine money to be made through technology, with companies like Google and Facebook showing the way in that regard, but with many of the smaller players, it is harder to see.

Spiegel is aware of this and has spoken about the ‘correction’ in the tech world when it comes to company valuations, which is refreshing. He could have become a billionaire overnight after Facebook offered to buy Snapchat for $3 billion, but resisted the urge in order to grow the business further.

As we have seen the value of relatively new digital companies increase, this has mainly come from the size of their audience rather than their business performance. It is risky as the number of users a company has is indicative of the potential revenue, but the numbers alone do not represent business success. 

At present companies are being valued on this potential rather than the reality of their business models, which creates a difficult situation for investors. It means that investments become more risky and eventually when enough of these fail, the bubble will burst. 

On the surface Spiegel's rejection of Facebook seems like a strong move given the current valuation, but if the IPO doesn’t come before the tech bubble pops, it could turn out to be another Ronald Wayne moment. 

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