Jan 26, 2017

Snap's IPO valuation trap

Yesterday I received two separate calls from Silicon Valley types, taking me (and my media peers) to task for expecting Snap's IPO to be "successful." In short, they don't believe the numbers add up.

"Successful" is a tricky term when it comes to IPOs, particularly since different companies list for different purposes (capital raising, employee liquidity, market cachet, etc.). But these folks were essentially saying that if Snap does manage to price at around a $20 billion valuation (fully diluted), it will have a very difficult time maintaining that past the lock-up period (at least for a while).

Basically it's a math question. If Snap is unprofitable and generated around $400 million in 2016 revenue (which is a reported estimate, not a fact), then it would have to trade at a 50 multiple of revenue. There have been some rumors that Snap had a bang-up Q4 that could push the total closer to $600 million, but even that would mean in excess of 33x.

For comparison's sake, Facebook went public in 2012 at around a 23x revenue multiple, and that company already was generating $1 billion in annual profit. Today, Facebook is at only 12.9x revenue.

Obviously the argument here will be growth curve, but how long will public equity investors be willing to value eyeballs over dollars? Particularly without voting rights? Even if you accept projections that Snap could hit $1 billion in revenue next year, the base IPO valuation of $20 billion would still be nearly 2x where Facebook is currently trading, and that's assuming shares don't budge a cent.

None of this is to say that Snap won't surprise all of us when its financial do become public, or that it won't grow into its valuation over time. But it is to say that the company's valuation rocket may need to take a breather.

Go deeper

Premier League players launch fund to help U.K. medical workers

Illustration: Aïda Amer/Axios

Premier League players have launched an initiative called #PlayersTogether, which will funnel part of their salaries to the National Health Service to support the U.K.'s front-line workers during the coronavirus crisis.

Why it matters: This decision came at the conclusion of a protracted argument between players, clubs and even government officials over who should bear the brunt of lost revenue in the midst of the pandemic.

Go deeperArrow42 mins ago - Sports

GOP sees more hurdles for Trump as coronavirus crisis drags on

Photo: Alex Wong/Getty Images

Republicans are increasingly concerned not only about President Trump’s daily briefings but also his broader plan to ease the nation out of the virus crisis and back to work. This concern is acute — and spreading. 

Why it matters: Trump can easily address the briefing worries by doing fewer, but the lackluster bounce-back planning is what worries Republicans most. 

Pandemic forces startups to shift gears

Illustration: Eniola Odetunde/Axios

Spaces CEO Brad Herman had an early warning about COVID-19 because his startup supplies VR attractions to a number of theme parks in China. Realizing that the business he spent the last few years building was going to evaporate, Herman quickly found a new way to apply his team's know-how: helping companies host Zoom teleconferences in VR.

Why it matters: Many startups are rethinking the viability of their core businesses in the wake of the coronavirus. Spaces' move is one of many such pivots likely to crop up in the coming months.