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One of the most talked about IPO’s recently is the “Snap Inc” Public offering and I as one of the many sceptics of the offering feel obligated to save people. As they say, it is important to talk about the elephant in the room so it does not just stomp you. Maybe that is not the correct saying…

So first of their valuation is a concern, supposedly they will open at around 20B market cap, which is to mildly put it overpriced. And here is why:

So in the filling Snap stated that,

Quote:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability,” the filing said. Other similar companies, like Twitter (TWTR), have also included similar language in their public offerings.

Which from their point is completely reasonable, as there is always legal concerns and a few other companies have stated basically the same thing, however a few things that have catches my eye in this.

Quote:

“The majority of our users are 18-34 years old,” the filing said. “This demographic may be less brand loyal and more likely to follow trends than other demographics … Snapchat also may not be able to penetrate other demographics in a meaningful manner. For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period.”

Now this is a bit worrying as even Snap doesn’t really believe that they can hold onto the user base in the future unless they keep adding an influx of users but as we all know it’s extremely hard to stay trendy all the time and everyone sooner or later moves on to the next big thing.

One thing that does strike me as a good thing is the fact that the users are loving Snap Chat and using it for over 20 minutes daily, which is an incredible amount if we look at other social media.

Also on the positive note, let’s look over the users:

Sure, at the time of the IPO, the users are a bit less than on Twitter but the amazing thing about Snap Chat’s user base is that the users are mostly from Western countries, which makes it amazing thing to monetize it. This might be the thing that saves Snap Inc. long term if they learn to effectively monetize their user base. With Twitter, the user base was way more diverse.

Let’s look over Snap Chat’s best assets:

Yes yes, we all know the best asset for Snap Chat is the dog emoji faces, which may seem to most of us a bit gimmicky but they really make Snap Chat amazing.

Really could not find an amazing example but here is one:

 

Yes this is what I believe is the best asset for Snap Chat right now, no not Ariane Grande but all of the emoji’s, that’s the thing that makes Snap Chat trendy in this over exaggeration world. In addition, of course let us not forget Spectacles – sun glasses that allow a person see snap stories while walking on the street or sitting in a bathtub.

If they keep up these kind of products and ideas, they might actually live up to their valuation and even exceed it in the future. Their user base can definitely support it.

Now let us look at the obvious downsides and things that might call doom upon them…

First off, Instagram just recently copied their main feature and are showing it off at the top of their app this may or may not have caused the Q4 user stagnation.

This is a huge red flag as this may destroy Snap Chat, they cannot compete with Facebook and their resources. They have to start monetizing fast and I am not sure they will be able to execute it very well. On top of that, their cloud storage is really expensive. They are not using their own severs but instead are provided by Google for a hefty price.

In my opinion, their downsides unfortunately outweigh the upside so it is really hard to not see the fact that the current valuation is overpriced and they are really looking to just cash out the investors while slowly regrouping for the future.

I do hope, that they will surprise us and am looking forward to invest in Snap Inc. if the conditions will be better, but for now, it’s probably better to take a wait and see stance.