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Is Snapchat’s IPO the Next Facebook – or the Next Twitter? Pennsylvania Trust’s Tara Hedlund Weighs In

RADNOR, Pa., Feb. 03, 2017 -- Ever since Snapchat officially filed for its long-anticipated IPO Thursday evening, investors have been culling through the company’s S-1 to find clues that signal whether Snapchat is the next Facebook – which has more than tripled since it went public – or the next Twitter, which is trading below its IPO price.

Tara R. Hedlund, Senior Vice President of Pennsylvania Trust, a leading wealth management firm in Philadelphia, cautioned investors not to be too hasty in predicting Snapchat’s long-term future based on how it trades in the days immediately after its IPO.

“Market pundits have been comparing Snapchat’s IPO to Facebook’s IPO,” she observed. “But investors should keep in mind that Facebook saw its share price dip below its IPO price in the months following the IPO at $38 per share in May of 2012. It took some time for Facebook to find its footing before it moved significantly higher over the next several years to today’s $130 price.”

“Twitter, on the other hand, was up more than 60 percent on the first day of trading after its IPO in November of 2013. Today, it trades at more than 30 percent below its original IPO price of $26 and 70 percent below its stock price high reached in December of 2013.”

“The lesson here for investors is that it may take some time before Snapchat can be qualified as a success or not.”

The company has not yet released its expected pricing per share, but investors have been guided to expect somewhere between $20-$25 billion market capitalization.

Hedlund said the following financial details in the S-1 were noteworthy for investors.

  • 2016 Revenue. Snapchat’s net revenue of $404.48 million in 2016 was up more than six times its 2015 revenue. "The company’s growth has been impressive," Hedlund said. Investors will be interested to see how the company plans to sustain that growth rate.
  • Users and Growth Rate. Snapchat reported a user base of 158 million active, daily users who are spending 20 – 30 minutes a day on the app – "Another impressive figure," Hedlund said. 
  • Net Loss and Negative Free Cash Flow. SNAP had a net loss of $514.6 million in 2016 and negative free cash flow of $677.7 million. "Like Twitter, Snapchat is not profitable and is not generating positive cash flow," said Hedlund. “Contrast that with Facebook’s strong profitability at the time of its IPO – Facebook was making money.”
  • Share Structure. Investors who do choose to participate in the public offering of SNAP should be aware that the shares issued will be non-voting shares.  This means that the two founders will continue to control decision making at the company after the IPO. 

“Until we see the expected pricing per share for the IPO and thus the associated valuation metrics we don’t have a complete picture of Snapchat,” Hedlund said. “Having said that, the financial results in the S-1 filing show the initial comparisons are closer to Twitter than to Facebook, in my view, when looking at the net loss and negative free cash flow.”  

About Pennsylvania Trust
Pennsylvania Trust is a leading, independent, employee-owned wealth management and fiduciary services firm in the Philadelphia region, with more than $3 billion in assets under management and administration. For over 30 years, the firm has focused on providing compassionate and caring client service. Pennsylvania Trust provides investment management, financial planning, tax, trust, estate and philanthropic solutions to help individuals, families, nonprofits and other organizations preserve and grow their wealth.

Joe Cerrone
(610) 228-0177

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