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Investors must be cautious toward world's biggest IPO
Next year there will be Snapchat 2.0 with a company that may have a listing valuation 100 times that of Snapchat at US$2 trillion.
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Nine months ago Snapchat, the camera messaging company, came out with its IPO. Today — the stock is down more than 50 percent from its second day of listing. (Shutterstock/File)
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ine months ago Snapchat, the camera messaging company, came out with its IPO. Seeing its filing to prospective investors, there was little doubt that the young promoters of the company were carried away in their illusions of grandeur. Its investment bankers had hyped the issue admirably across various channels.
As someone who spent his initial years in investment banking and financial media, I had then written that the Snapchat offering reflected the arrogance of the promoters amidst a funding bubble and deserved to be junked. Today — the stock is down more than 50 percent from its second day of listing. In fairness that was an easy call to make.
Next year there will be Snapchat 2.0 with a company that may have a listing valuation 100 times that of Snapchat at US$2 trillion. That company is the national oil company of Saudi Arabia and the world’s largest — Saudi Aramco.
The company is so big and important that its expected market value will be almost 3 times of the nations’ entire gross domestic product (GDP). The numbers being floated around may be exaggerated since Aramco has never declared its financials so far. The company does report its level of proven reserves and production.
The $2 trillion valuation is based on its reserves but valuation based only it is dubious since many oil companies trade at a significant premium or discount to their reserves.
Originally the oil was discovered by the companies that were previous avatars of Exxon-Mobil but were nationalized amidst the anti-Western sentiment four decades ago. Today the oil-dependent nation needs the money as crude prices crumble and are expected to remain weak with the advent of alternatives like shale oil and electric cars.
The stated aim is to use the funds for diversifying the economy. Currently 10 percent of the GDP comes from manufacturing outside of the energy industry.
