exit, ipoTech companies are usually valued at 10x revenue. This puts Snapchat at about $5b given a 2016 revenue of 500m.
This is like a third of its current valuation.
Do you think Snapchat would plunge after IPO kind of like Facebook did?
Nobody can know the answer to your question until it happens. Otherwise everyone would know whether to buy or short shares once it does IPO. I know this sounds a bit smart-aleck, but let me explain, if I may.
The theory is that the underwriters of the IPO will price it at a level where it will be well-received by the investing public, but history shows this isn’t always the case.
Most of the time it’s about perception. If investors looking at the company’s revenue model are convinced that the company is, or soon will be, profitable and the pricing of the shares isn’t too greedy then you have a good recipe for a favorable uptick when the stock begins trading. On the other hand, if nobody really understands how the company will make money in the long-run then it might not do so well, no matter how cheaply it’s offered.
The problem with many IPOs is that when they first begin to trade publicly, there are quite a few investors who bought shares or invested early on in the process, and this is their first opportunity to cash out some of their position and recoup their money. If demand for the stock by the public is light then selling by these “insiders” will outstrip buying and the stock will fall until the excess shares are bought up. On the other hand, if demand is heavy then the stock will rise even in the face of selling by insiders.
As you can see, there’s no way to know until trading begins what will really happen. I hope this gave you some insight, anyway.
Good luck!
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