Last week Snap (the parent company of Snapchat) filed to go public in March.
As per usual with technology stocks, Snap will likely be tremendously overvalued when it begins trading. The company has been rumored to be seeking a $25B valuation at its IPO – over 60x its sales of $400mm.
Facebook IPOed at about 13x sales and Twitter IPOed at about 4x sales.
Facebook and Twitter IPOed long ago by tech industry standards, so how does the Snap valuation compare to the current Facebook and Twitter valuations? Facebook currently trades for $209/user, Twitter trades for $34/user and Snap’s IPO will price it at $158/user.
Facebook has revolutionized the online advertising industry and is one of the better managed companies in the country. Snapchat is much closer to Twitter as far as where it sits in its corporate life-cycle.
In addition to the valuation madness, the company will debut with a complicated share structure that gives its CEO total control over all aspects of the company with little to no checks and balances.
This structure can work well with a visionary CEO, but there is not enough evidence to date that Evan Spiegel is that to justify pricing the stock this high with this structure.
So where are investors to turn?
Traditionally, investors seeking safe haven in stocks turn to dividends. The dividend produces a floor for a potential drop in the stock prices and companies focusing on paying and growing a dividend are usually mature and not focused on risky growth initiatives.
Unfortunately, the mass investment in dividend and low volatility stocks with passive investing strategies has driven their prices up to unsustainable levels.
Luckily, I have swooped in with a new article on alternatives to dividend stocks.
Let me know what you think.