Snap has IPO market excited, but job impact is small

Snapchat co-founder Evan Spiegel with Snapchat employees.
J. Emilio Flores | Corbis | Getty Images
Snapchat co-founder Evan Spiegel with Snapchat employees.

Snap has investors hoping that the IPO market may finally be taking off, after a virtually lost year in 2016.

One small detail in the announcement caught my eye. What's amazing to me is that this may be the largest IPO since Alibaba — with an estimated market capitalization between $20 and $25 billion — and it has only 1,859 employees.

That may seem like a lot of people, but compared to other companies with a similar market cap, it's pretty small.

Employment at companies with market cap between $20 billion and $25 billion

If you want to narrow the focus to just technology companies with a similar market cap, there is still far greater levels of employment among what could be called "old tech:"

Employment at technology companies with market cap between $20 billion and $26 billion

It's easy to understand why a company like Snap employs fewer people: the nature of most new software/social media companies is that they don't need that many people.

Consider:

  1. Twitter has only 3,900 employees, though it has half the market valuation of Snap ($12 billion);
  2. Facebook — which owns Instagram — employs 17,000 but has a $380 billion valuation, about 15 times that of Snap.
  3. Even China's Tencent Holdings has only 31,000 employees. That sounds like a lot but at $246 billion, its market cap is 11 times that of Snap, and operates a far larger suite of businesses.

My point? These companies — the software companies of the future — may be great engagers and they may have a great business model, but they are not going to be employing vast numbers of people.

Of course, Snap is still growing. They only had roughly 600 employees the year before. So getting to 1,859 was quite a feat and they will undoubtedly add more.

But not that much more. They are unlikely to ever have the 31,000 people Micron has.

"If the goal is job growth, it's not going to be coming from these companies. They just don't need that many people," Cindi Profaca from IPOfinancial.com said.

Fewer employees, of course, means higher productivity, and that's one of the reasons these companies are so attractive to investors.

"That's why there is such high multiples for these software companies. The profit margins are really high because they can scale very easily without adding that many employees," Kathleen Smith from Renaissance Capital said.

Let's hope Snap finally puts the IPO market into high gear. President Donald Trump's emphasis on cutting regulations is music to the ears of those in the small-cap universe that makes up most IPOs.

Just don't expect many of these companies to move the needle on the jobs report.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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