A Blog by Jonathan Low


Mar 2, 2017

Lucky, Good or Both? Snap IPO, Highest Since Facebook, Values Company at $24 Billion

There had been questions about Snap's prospects prior to its IPO: was its growth sustainable, would competition rein it in, could its youthful management team deliver a second act.

But as luck would have it, the day it went public was the day after President Trump (finally...) delivered a major speech which sounded, well, presidential, raising hopes that his de-regulatory, anti-tax agenda might actually survive, buoying equity markets generally, and Snap's offering in particular.

The question now is whether that confluence of fate and timing was a remarkable one-off, or whether it presages a new round of tech financial magic. JL

Michael de la Merced reports in the New York Times:

The pricing came on a day when the market surged to a new high, fed by expectations of tax cuts, looser regulations and higher interest rates under the Trump administration. The stock sale sets Snap as the most valuable American tech company to go public since Facebook five years ago. And it may herald a wave of unicorns — tech start-ups valued at more than $1 billion — expected to hit public markets in the next few years.
Millennials, those 14 to 35 years old, may be as exuberantly hyped a demographic as any in recent memory.
That generation has now helped power one of the biggest and most eagerly awaited stock market debuts in recent memory, making billionaires of the founders of the disappearing-message service Snapchat.
Investors, attracted by Snapchat’s hold on its millennial users — who check the app on average more than 18 times a day — flocked to the initial public offering, pushing the parent company, Snap Inc., to a valuation of nearly $24 billion.
The stock sale sets Snap up as the most valuable American technology company to go public since Facebook nearly five years ago. And it may herald a coming wave of unicorns — technology start-ups valued at more than $1 billion by private investors — that are expected to hit the public markets in the next few years.
Snap’s offering was priced on Wednesday at $17 a share — a dollar more than the previously expected pricing range. The pricing came on a day when the stock market surged to another high, fed by raised expectations of tax cuts, looser regulations and higher interest rates under the Trump administration. Shares of the social media companies Facebook and Twitter also rose.
Those buying into Snap’s offering did so even as warning signs have flashed over the company, based in California. It lost more than $500 million last year, and its explosive user growth appears to have hit a speed bump. And in a decision that has angered some large investors, the shares will have no voting rights, leaving control in the hands of the company’s founders, who can retain that power for years even after leaving Snap.
Yet when Snap begins trading on the New York Stock Exchange on Thursday, under the ticker name SNAP, it will command a lofty valuation multiple even richer than that of Facebook, which earned $10 billion last year.
The question beyond this week is whether Snap will prove to be like mighty Facebook or embattled Twitter.
Much has been riding on Snap’s offering, including expectations that it will lift a moribund market in new stocks. In going public, Snap has leapt ahead of other technology darlings like Uber, Airbnb and the data-analysis provider Palantir.
After a nearly two-week road show for investors that spanned the country and stretched to London, demand for Snap shares proved robust. Bankers for the company received orders totaling more than 10 times the number of shares up for sale.
With a market value of almost $24 billion, including unvested stock options and grants, the company is now setting itself up with little room for error.
Throughout the presentations to investors, Snap executives and their advisers kept the emphasis squarely on the promise of what first seemed like a technological lark. Instead of focusing on the core product of disappearing messages, Snapchat instead represents a new way of consuming content, largely produced by its users — laid alongside a fast-growing advertising business.
Those sales have come primarily from advertisers who covet both millennial users and a service that has figured out creative ways to reach them. Big-name brands from Gatorade to Tiffany have run campaigns on the social network, and the advertising titan WPP said at an industry conference on Wednesday that it spent $90 million on Snapchat ads last year.
Snap has come a long way from its beginnings in a Stanford dorm room as a service used largely by young people enamored with sending their friends pictures and video that self-destructed after seconds.Based in the fashionable Los Angeles neighborhood of Venice, the company has since introduced ways for users to broadcast “stories” about their days to wider audiences and pioneered the use of computer-generated lenses that transform those users into dogs or Taco Bell tacos.Now, Snap is trying to convey even greater ambitions.
In the prospectus for its stock sale, the service declared itself a “camera company.” So far that has included selling Spectacles, camera-equipped sunglasses that let users upload 10-second videos directly to Snapchat, which briefly captured the fancy of the tech cognoscenti. And Snap has worked on prototypes for products like drone-mounted cameras.
Evan Spiegel, 26, a Snap founder and its chief executive, has played down comparisons to the Facebook billionaire Mark Zuckerberg and has assiduously painted an image of himself — a fashion aficionado with a supermodel fiancée — that is different from Mr. Zuckerberg.
But Mr. Spiegel and his fellow shareholders are still hoping that investors will help lift their company to Facebook-type heights. Since Mr. Zuckerberg took his business public just under five years ago, Facebook’s shares have climbed more than 254 percent.
The cautionary tale is that of Twitter, which celebrated a lofty stock market debut in 2013, only to have its share price tumble amid questions about its ability to grow. Twitter’s stock is down about 62 percent from its initial public offering, and the company has had to fend off questions about whether it can remain an independent and publicly traded business.
Analysts also raised the specter of lower growth with Snap, given that the company’s user growth slowed last year.
Then there is the copycatting of Snapchat’s most recognizable features, from its Stories to its animated lenses and filters. Chief among the imitators is Facebook, whose Instagram service has forthrightly adopted those elements. Even smaller social networks like Medium, a blog-posting service, have rolled out similar offerings.Executives contended during the investor presentations that Snapchat’s slowdown was largely due to technical issues with its Android app. And they argued that the bigger issue to look at was engagement, or, put another way, how much its audience loves the app.
And Snap, under Mr. Spiegel, has argued that it will continue to roll out innovations.
Regardless of whether Snap soars or sinks, its offering will significantly enrich its earliest investors, notably Mr. Spiegel and the company’s other founder, Robert Murphy. With 227 million shares each, the two men are each worth more than $3 billion on paper, well ahead of their 30th birthdays.


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