Snap (SNAP), best known for it’s SnapChat app, is the latest tech IPO, the largest since 2014. I have never used the app, don’t really follow the company, and for the most part feel like most people that this is way overvalued and may end up with the same painful stock price route of GoPro. However, I did have a couple thoughts on yesterdays IPO.
- Yes, it’s likely overvalued, but they do have an innovative marketing angle which has the potential to unleash something big. Snapchat allows you to put various filters on the picture of yourself, to make it more amusing to whomever you send the picture to. Key to this is their ability to support sponsored filters – filters branded to the company developing the filter – an example of which is the Taco Bell filter on the right. Sure, its kinda silly (but this whole app that they built a 33 billion market cap around is pretty silly), but as far as building brand awareness and ‘hipness’, it seems to me to be pretty unique. Any company looking to strengthen its relevance should find this more intriguing than any banner or pop up ad. Teenagers are the primary demographic for this app, so it would be an interesting ad choice when promoting a movie and its characters, or other product aimed teens. It is sure more interesting than TV advertising, banner ads or popups. It will be interesting to see if this gets traction, or if the founders of Snapchat find other innovations in advertising.
- Economist Steve Liesman of CNBC had an interesting offhand comment when talking about the IPO. He essentially stated this exemplifies what is wrong with the economy and why growth is so slow. Snap is a company getting a 31 billion market cap, bigger than Paccar and Nordstrom combined. Snapchat has 1,200 employees – Paccar and Nordstrom combined have 95,000. Snapchat has 550 million in long term assets (i.e. plant and equipment) – Paccar / Nordstrom have 9.5 billion in long term assets. The new economy requires very little capital investment – which is great for 1200 people, but it siphons away capital from companies that spread it across the economy. Maybe this helps explain why the Fed can’t get growth going even at near zero interest rates.
I won’t be following Snap closely, but it may turn out to be in interesting story going forward. It will be interesting to see if this is the next Facebook or the next GoPro.