Snapchat is expected to IPO March 2nd and I’m torn as to whether to invest. I think it’s an innovative product that provides a compelling experience but there’s a series of red flags - from the weird ownership structure to the potential slowdown in user growth to the growing per user costs. At the same time it may be the next social network. Facebook IPOed at just over $100B and is now worth almost $400B. I hate to compare Snapchat to Facebook but the bull case is that it can be the next Facebook. There’s been a history of startups growing to surpass the prior generation of companies and outside of Snapchat there’s nothing in the social media space. Snapchat has its work cut out but they do offer a unique product with a strong user experience that’s constantly improving.
So what should one do in this case? On one hand the product seems great with a ton of potential but on the other there are quite a few questions. My gut is that Snapchat is unlikely to be stuck in the middle - it will either be a massive success or a flop. If this is the case it’s not necessary to get in at the very beginning and I can see how it goes for a few quarters before deciding to invest. I’m cautiously optimistic that they can figure out their costs but worry that their growth stalled due to Facebook’s push of stories in Instagram and WhatsApp. From the S1 it’s impossible to know if there was an impact but after a few quarters it should be clear what’s happening. If at that point it looks as if they’ve taken care of their growth and cost problems it will be an obvious investment but at the IPO I’ll likely invest a token amount just to have a stake.
It took Facebook over a year to get back to their IPO price but since then they’ve nearly quadrupled. There’s no need to jump into Snapchat at the first possible moment. Instead it’s better to wait a few quarters and see how it evolves before making a significant investment decision.