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Snap Inc. has set the Snapchat (SNAP) Stock IPO between $19.5 billion and $22.2 billion. Before the valuation was set, it was anticipated to be between $20 billion and $25 billion. On Thursday, Snap Inc. stated that it is estimated to raise $3.2 billion from the offering of 200 million Class A shares. The offering is expected to be priced between $14 and $16 per share.

Selling shareholders and investors will secure $427 million from the offering if it prices at the top of the range. With an estimated 1.16 billion shares outstanding after the offering, Snap said it intends to use the proceeds, roughly $2.1 billion, for general corporate purposes and to acquire businesses.

With an estimated 1.16 billion shares outstanding after the offering, Snap said it intends to use the proceeds, roughly $2.1 billion, for general corporate purposes and to acquire businesses.

Concerns about Growth

As mentioned, the top of the Snapchat IPO valuation range, $22.2 billion, didn’t beat the estimated top range, $25 billion. This is likely due to the slowing new active user growth and unconvincing business model.

Snapchat users
Snapchat users

Snapchat has roughly 158 million daily users, however, it’s new active user growth plateaued in the last quarter of 2016. This may be due to Snapchat’s increasingly ubiquitous nature. Instagram now has its own version of disappearing video and Twitter recently introduced Moments, a similar media format. Disappearing video is a format so easy to incorporate into other social media platforms, it may ultimately be difficult for Snapchat to differentiate itself.

Further, most of Snapchat’s users are millennials. Investors are concerned about Snapchat’s inability to appeal to an over-30 crowd. Companies like Facebook were able to become more profitable, in part, because of this ability.

Another peculiarity: Snapchat made it clear that they will be utilizing a three-share class structure. It is the first of it’s kind and leaves no voting rights to IPO investors.

The majority of Snapchat’s revenue comes from advertising. With new active user growth slowing and with no strategy in sight to gain over-30 users, Snapchat may find it’s new start a bit rocky.

Marketing Roadshow

Snapchat intends to curb this potentially rocky start with its Marketing Roadshow. Management will travel to London, New York, Boston, San Francisco, and Los Angeles to court investors and pitch stock.

As stated, Snapchat has recently seen a dip in new active daily users, so they will likely tempt investors with other stats and observations.

For instance, Snapchat’s supporters are confident that their loyal user base will differentiate them from competing sites and provide a solid base from which it will ascend. What’s more: last year, Snapchat’s revenue scaled to $404.5 million from $58.7 million in 2015.

Snapchat Moves Onward

Snap Inc. is confident in Snapchat’s lasting value; only time will tell. For more constructive financial research, analysis, and information check out IQ Option.

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