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Snapchat IPO plans worrying investors

After refusing a $3 billion (£2 billion) acquisition offer from Facebook, Snapchat has grown into a company valued at $15 billion (£10 billion) and is planning an IPO, sometime.

Snapchat CEO Evan Spiegel said it has internal plans for an initial public offering, but no timeline. It is “just another dot on the list of things to do”, although we don’t know where that dot is situated compared to other things to do.

An IPO for Snapchat might be worrisome for investors, considering the mobile app hasn’t shown a great amount of revenue. It is experimenting with video ads and other forms of advertising, but right now compared to Facebook, Yahoo or even Twitter, it is far down on the value ladder.

Smaller companies like Etsy and Box have hit Wall Street early, and the prominence of Snapchat in the media might spark an early rush in the stock value, but overtime we suspect Snapchat will face the same issues Twitter currently faces.

The first of these issues is a lack of core revenue areas and a sustainable business model. Snapchat is free, relies heavily on users viewing ads and lacks the massive numbers Google and Facebook manage.

Spiegel said the company has plans to reinvent advertising, but whether this will make any more money than the current advertising platforms is questionable. Some analysts claim Snapchat could be the next Time Warner, but it might also be the next MTV.

This lack of judgement when it comes to Snapchat makes it value fluctuate. Even Spiegel claims the bubble in technology will not last, and one of the first companies to be critically looked at will be Snapchat, unless it manages some incredible move to profitability.

Snapchat might wait until 2016 before making plans for an IPO, matching with taxi service Uber currently valued at $50 billion (£32 billion), three times the current value of Snapchat.

David has been a technology journalist for over six years, covering a wide range of sectors. He currently researches apps, app sectors and app markets for Business of Apps, and has written for ITProPortal, RTInsights, ReadWrite, and Digital Trends.