Will Snap make a successful IPO?
The case for investing in Snap Inc really boils down to one thing: how much of a genius you think its 26-year-old founder Evan Spiegel is.
Let's be clear: There is no real financial justification for investing in the owner of ephemeral messaging service Snapchat right now.
The company somehow managed to lose more money ($US515 million) than it generated in revenue ($US404.5 million) last year. Revenue growth is slowing, its user base is even smaller than struggling social media rival Twitter's and its key product was effortlessly cloned by Instagram, a unit of Facebook.
Evidently, some big investors in the US are OK with all of this.
![Snapchat CEO Evan Spiegel whose specialty is product design.](/content/dam/images/g/r/w/u/r/e/image.imgtype.afrArticleInline.620x0.png/1488415506509.jpg)
Snap Inc priced its IPO on Wednesday morning above the advertised range, giving it valuation of $US24 billion ($31 billion). We'll get a clearer sense for how robust demand is when the stock starts trading on the New York Stock Exchange this evening (Australian time).
Tech bubble - or not?
Before you rush to say the Snap valuation is evidence of a bubble in tech a few points need to be made.
First, the big valuation probably shows that demand for hot new tech IPOs outstrips the supply of them. Some prominent investors in the US have been complaining for a while now that hot brand name "unicorn" startups (think Uber, Airbnb and so forth) have been staying private for too long.
Now their wish has been granted, with a company arguably not ready for the primetime of a stockmarket listing making that leap.
![Evan Spiegel, known to many in Australia as the fiancee of supermodel Miranda Kerr.](/content/dam/images/g/s/a/s/z/9/image.imgtype.afrArticleInline.620x0.png/1488415506404.jpg)
Nobody can say with any confidence whether Snap will end up being the next Facebook or the next Twitter. But in spite of the obvious concerns around its finances, the company does have a lot going for it.
It has a user base made up of hard to reach millennials, a unique and potentially very lucrative advertising model, and like most great tech firms including Facebook (but unlike Twitter, which has suffered a revolving door at the CEO level) a clear, dominant founder.
That founder, Spiegel, known to many in Australia as the fiancee of supermodel Miranda Kerr, is a different type of tech entrepreneur.
His specialty is product design – the look, feel and user experience of a web product. Unlike Mark Zuckerberg or Jack Dorsey, he reportedly knows very little code.
Former Twitter CEO Dick Costolo once described Spiegel as one of the "best product thinkers" he has come across, while entertainment executive Michael Lynton had enough faith in Spiegel to step down from his job as Sony Pictures CEO and become full-time chairman of the company's board.
However, at a time when concerns about the male-dominated culture and sexual harassment in the tech industry are heightened, its also worth remembering that in 2014 leaked emails containing misogynistic comments from Spiegel's college days emerged.
Product innovation
Snap's ability to innovate in "product" is clearly what it sees as its core strength.
"Our strategy is to invest in product innovation and take risks to improve our camera platform. We do this in an effort to drive user engagement, which we can then monetise through advertising. We use the revenue we generate to fund future product innovation to grow our business," Snap said in its IPO filing.
One question this raises is whether the velocity of Snap's product innovation will outpace Facebook's ability to copy it.
Venture capitalists will often tell you that the most important factor for them when making investments is the quality of the founder. And so it is with Snap – which seems like a venture capital style investment on the stockmarket.
Many traditional investors won't be comfortable trying to judge intangibles like a founder's personality. In any case, while the risks in Snap look extremely (unfathomably) high, so too potentially, are the rewards.