Snap IPO: What Investors Need to Know

By Adam Levy Markets Fool.com

Snap, Inc. reportedly filed for its initial public offering with the SEC back in October. Rumor had it the highly anticipated Snap IPO would happen in the first quarter of 2017, giving investors a chance to buy shares in Snapchat's parent company. Here are some answers to investors' biggest questions about Snap stock.

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Image source: Snap/author.

When will Snap stock become publicly traded?

Early reports indicated that we could see Snap stock publicly traded as early as March. But like everything Snap and CEO Evan Spiegel do, there's an air of secrecy around the IPO of the company best known for its disappearing-photo communication app.

Snap filed confidentially with the SEC, which is an option for companies generating less than $1 billion in revenue. All of Snap's financial information will remain confidential until just a few weeks before Snap becomes publicly traded. Once those documents are released to the public, we'll know roughly when the IPO is happening. Until then, it remains a secret. It'd be a surprise if there isn't a Snap IPO relatively early this year, though.

What is Snap stock's share price and valuation?

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Snap's share price will depend on how many shares it issues. What's more important for investors to pay attention to is Snap's valuation. Early reports indicate that Snap is seeking a valuation of $25 billion, but that could climb as high as $40 billion, it has been reported.

To put that number in perspective, here's how Snap's rumored valuation at IPO would compare with Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR).

Company

Valuation

Forward Price-to-Sales

Snap

$25 billion

26.7

Facebook

$104.2 billion

20.5

Twitter

$14.2 billion

12.9

Data sources: eMarketer, MarketWatch.

At $25 billion Snap's valuation would be significantly higher than similar companies when they went public. However, Snap expects to nearly triple revenue from 2016 to 2017, with the possibility of doubling it again in 2018. On the other hand, Snap still isn't profitable.

How to invest in Snap stock

Unless you're an investment bank with hundreds of millions to invest, you'll just have to wait until Snap starts trading publicly on the market and buy stock through your usual broker.

Hopefully the exchange that services Snap's IPO will be able to handle the heavy demand that's expected for the offering. During Facebook's 2012 IPO, Nasdaq famously had problems processing all of the orders, resulting in some orders that got stuck in Nasdaq's system for hours. The debacle led Twitter and many other tech companies to IPO on the New York Stock Exchange in subsequent years. It's still unknown whether Snap will use Nasdaq or the New York Stock Exchange.

Could Snap's filing for an IPO spur other tech stocks to go public?

Many tech companies will be using the Snap IPO as a bellwether to help make the decision about going public. If the market reacts favorably to the highly anticipated IPO, it could encourage other stocks to go public.

Only 20 tech stocks went public in 2016, the slowest IPO year since the Great Recession. But we could see companies such as Uber, Xiaomi, and Spotify go public if the Snap IPO succeeds. There are dozens of extremely high-value "unicorns" that could benefit from the cash infusion of an IPO.

The anticipation and demand for publicly traded share of Snap are extremely high, which ought to lead to a relatively successful IPO. But the financial details of the company remain to be seen. Only time will tell, so investors will have to remain patient for now.

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The author(s) may have a position in any stocks mentioned.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.