Why did Snap Inc decide to identify as a Camera Company?
At a software valuation, the early investors & founding members would easily be coming out a few million dollars richer, each. It all comes down to the lessons we learned from the little blue chirping birdie, Twitter.
They don’t want us to have a higher valuation-
A higher valuation early on chains the company to Elon Musk-esque expectations on profitability, user growth & top-line sales. The Stories feature from Instagram took a measurable haircut from Snap’s user growth in 2016, slowing to 3.2% Q/Q growth from 17.2%. Snap Inc is cautiously jumping into the IPO scene with heightened self-awareness of their mortality.
They’ll be tasked to deliver on a $18.5B valuation & +40x Price to Sales Ratio while:
- Growing the existing 161M+ daily active users
- Continuing to innovate with the Spectacles & future hardware
- Tackling profitability with their Net Loss of $514M in 2016
My thoughts are they’ll have their hands pretty tied up in delivering. Although, one thing is pretty much guaranteed, they’ll have their pockets full: co-founders Evan Spiegel & Bobby Murphy are making out with a combined +$7.5B, easily supplanting Jack Dorsey’s measly $1.25B.
To put perspective on the $18.5B. Here’s a few companies that aren’t getting as much love from Wall Street.
- Twitter Inc, $6.6B: Unfiltered Self-Expression Social-Media Platform
- Shopify Inc, $5.5B: Cloud-based Mutli-Channel Payment Solution
- Square Inc, $4.95B: Mobile Payment & Financial Services Gateway
- Yelp Inc, $2.65B: Consumer-Conscious Business Reviewing Platform
Valuations as of 2/17
If you add the valuation of any three of the above companies, you’ll still need to ask Zucks for at least a $1B loan for an even exchange. That brings me to my point, valuation as a camera company requires a massive profitability commitment for a company that’s yet to to be in the black (see 2016 Net Loss), imagine delivering on a higher software valuation.
Note: I plan on opening my SnapChat in the next 24–72 hours.