Thursday, October 27, 2016

Will Snapchat's IPO Reinflate the Startup Bubble?

2016 has been a slow year for startup IPOs, but Snapchat has been in the news recently for their projected upcoming debut and the valuation it is expected to receive. At $25 billion, it would be more than Google's back in 2004.
I've previously written about the Startup Bubble and its deflation, but investors took it easy in 2016 and are itching to get back into the game.
Tech Insider: Chart of the Day
Obviously, inflation probably contributes a little (Google's IPO valuation in 2016 dollars would be about $29.4 billion) and Snapchat has become more than a simple messaging service made famous for the potentially scandalous, time-sensitive, disappearing messages it enables.
However, this still seems excessive for what has been a very conservative year in terms of startup valuations and a deflating of a perceived Startup Bubble. Yes, it is one of the few companies able to reach the younger (18-34) demographics; but, as Facebook knows, interest fades quickly, especially when their parents start to join.
Venture Capital firms and other investors have money in their pockets and are anxious to invest, so reinflation of the bubble seems like it only needs a small push to get going again. Fortunately, I think most tech investors are more disciplined and would not let it get out of hand, but I'm not so sure about the rest of the market/public.
One interesting aspect of Snapchat is its ability to monetize. Facebook took years to do so and, even at its IPO, told investors not to judge it on standard financial and earnings metrics. Google and other Silicon Valley giants are still struggling to find the secret formula to mobile ads and the dust still hasn't settled on what will consistently work.
So on one hand, it's a innovative, fast-moving company that has found a unique way to advertise. On the other, it's a messaging app that (for now) appeals to the ever-finicky preferences of the younger demographic.
A $25 billion IPO is significant and it's first-day open and closing prices will be interesting to watch and see how the rest of the industry and world view the company. Even more interesting will be how quickly Snapchat will continue to evolve and if it can have staying power over the next few years.
What are your thoughts on whether it will kickstart a new age of successful tech IPOs or initiate the new startup bubble?

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