Snapchat IPO? Don’t Buy

Snapchat, which prefers to go by the name of its parent company Snap Inc. in the investment context, is preparing for a $25 billion IPO in the second quarter of 2017. You already know my opinion on things like this, but I’ll go ahead and complete the formalities: People that buy into IPOs like Snapchat are engaging in the greater fool theory that was typical in the 1990s because they are speculating when they purchase an ownership share in a business that has no relationship between profits and earnings.

Right now, Snapchat is earning profits of around $50 million. When compared against a valuation of $25 billion, this means that the initial valuation is 500x earnings. I do acknowledge that the figure is not as absurd as it sounds. Because Snapchat is in the early stages of monetizing its app, it can rapidly double its earnings and then double them … Read the rest of this article!