Snap Faces Questions Regarding its Ability to Generate Profit

Snap Faces Questions Regarding its Ability to Generate Profit

Snap Incorporated management has a tough task to showcase the abilities of popular social networking app Snapchat to generate profit year after year. On Monday, Snap started with its roadshow in London to promote the company before its initial public offer. The company is seeking a valuation between $19.5 billion to $22.3 billion and the stock will be listed at the New York Stock Exchange. Earlier, Snap was planning to raise money at valuation between $20-25 billion.

Snapchat faces tough competition from Facebook as social networking giant owns Facebook social network, Instagram and WhatsApp. Facebook’s WhatsApp directly competes with Snapchat as a messaging platform. But, recently launched Instagram’s ‘Stories’ feature also competes with Snapchat for disappearing videos. While Snapchat has 158 million daily active users, Instagram also reached 150 million active users per day after it launched Stories feature on its app.

Snapchat also faces questions from investors about user growth on its network. Twitter is another example before investors of a very popular network not been able to generate enough of advertising revenues. Twitter is also facing leadership issues. The stagnation in user growth has also put pressure on Twitter’s stock.

Richard Saldanha, global equities fund manager at Aviva Investors said, "My view would be investors should tread with caution here, the fact the shares will carry no voting rights would be a major concern for me from a governance perspective."

Investors attending Monday's event said Snap's 26-year-old Chief Executive Evan Spiegel gave a sleek presentation. However, they were disappointed there were no projections on the company's future revenues or advertising share - an indication of how quickly Snap thinks it can make money from its huge user base.

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