Snap lowers valuation expectations in highly awaited IPO

Thu Feb 16, 2017 6:36pm EST
 
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By Lauren Hirsch and Sruthi Shankar

(Reuters) - Snap Inc (SNAP.N: Quote), owner of the popular messaging app Snapchat, set a lower-than-expected valuation range on Thursday, amid mounting investor concern over its unproven business model, slowing growth and tight founder control.

The company, which filed for an initial public offering earlier this month, was widely expected to be valued at between $20 billion and $25 billion. However it said on Thursday it was targeting a valuation between $19.5 billion and $22.3 billion, ahead of an investor roadshow due to start on Monday in London.

The lower valuation range reflected initial investor feedback. Snap wants to ensure there is sufficient demand for shares of the company that it trades up on its first day in public market.

Investors have been poring over the filing for Snap's upcoming IPO to assess whether the still-unprofitable company will be the next Facebook Inc (FB.O: Quote), which has figured out how to make money from its social media platform, or if it will be more like Twitter Inc (TWTR.N: Quote), which is struggling to achieve the same goal.

With platform-hopping millennials as its prime customer base, and constantly evolving competition, the fact that Snapchat's new user growth has already begun to slow concerns investors, sources said, asking not to be named because the deliberations are confidential.

New active user growth was mostly flat in the early part of the last quarter in 2016, according to the IPO filing. Facebook's Instagram, which had 600 million users as of late 2016, has introduced its own form of disappearing video content. On average, Snapchat has 158 million daily users.

"Snap is already demonstrating decelerating growth before they have managed to break even," said Yann Magnan, managing director at Duff & Phelps.

Unlike social media platforms such as Twitter and Facebook, Snapchat can be harder for new users to understand and easier for non-users to avoid, some investors said.   Continued...

 
A Snapchat sign hangs on the facade of the New York Stock Exchange (NYSE) in New York City, U.S., January 23, 2017.  REUTERS/Brendan McDermid