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Snapchat Parent Working on IPO Valuing Firm at $25 Billion or More
IPO of virtual-messaging firm could take place as early as late March
Oct. 6, 2016
Snap Inc. is working on an initial public offering that could value the popular virtual-messaging company at $25 billion or more, in what would be one of the highest-profile debuts in years.
The company, formerly known as Snapchat, is preparing the paperwork for an IPO with a view toward selling the shares as early as late March, according to several people familiar with the matter. There’s no guarantee the four-year-old Venice, Calif., company will proceed with a share sale on that time frame or what its valuation might be.
If Snap, best known for allowing users to send disappearing messages from their smartphones, moves forward as planned, it would be the biggest company to go public on a U.S. exchange since 2014. That’s when Chinese e-commerce company Alibaba Group Holding Ltd. debuted at a $168 billion valuation. Snap would become the first of a small group of highly valued and closely watched venture-backed companies, led by Uber Technologies Inc., to test the public markets.
A level of $25 billion or more would also represent a significant premium to Snap’s most recent valuation, which was pegged at $17.8 billion in its last funding round in May. That would bode well for a new-issue market that until recently suffered from reluctance on the part of public investors to match the private valuations of many Silicon Valley startups.
Underpinning Snap’s valuation is the company’s dramatic revenue growth since it first started running advertisements in 2014.
The company told investors earlier this year it expected revenue of between $250 million and $350 million in 2016 and as much as $1 billion in 2017. It’s already ahead of the top end of its 2016 forecast, according to two people familiar with the matter.
In 2015, the company generated just $60 million in revenue. It’s not clear whether Snap is profitable.
Messaging company, now called Snap, could be one of the highest-profile stock debuts in years
Nov. 15, 2016
Snap Inc. has confidentially filed paperwork for an initial public offering that may value the popular messaging platform at as much as $25 billion, a major step toward what would be one of the highest-profile stock debuts in recent years.
The company, formerly known as Snapchat, made the filing with the Securities and Exchange Commission in recent weeks, according to people familiar with the matter.
An IPO, expected as early as March, could value Snap at between $20 billion and $25 billion, one of the people said. The Wall Street Journal reported last month that the valuation could be $25 billion or more. The reason for the discrepancy isn’t clear.
If Snap pursues an IPO at the currently expected valuation, it would still be the largest U.S.-listed technology offering since Chinese e-commerce company Alibaba Group Holding Ltd. made its debut at a $168 billion valuation in 2014.
Snap would become the first of a small batch of highly valued and closely watched venture-backed companies, such as Uber Technologies Inc., to test the public markets.
The four-year-old company, whose Snapchat app lets users send disappearing messages from their smartphones, was eligible to file its IPO paperwork confidentially because it expects to have less than $1 billion in revenue this year. Under the 2012 Jumpstart Our Business Startups Act, companies with annual revenue below $1 billion have the option to file an initial draft of their IPO prospectus with regulators and make adjustments before unveiling it publicly.
Morgan Stanley and Goldman Sachs Group Inc. would be lead underwriters of a Snap IPO, according to people familiar with the matter. Snap executives plan to be relatively conservative in pricing the offering, the people said.
There is no guarantee that Snap, based in Venice, Calif., will proceed with a share sale in the time frame it currently envisions, or that it will achieve the valuation contemplated.
Snap’s main source of revenue is selling ads on Snapchat that are slotted in between stories contributed by media partners and video diaries posted by the app’s users. Marketers also can buy location-based or event-based geofilters and “lenses” that add quirky characteristics to photos and videos.
Snap has been working hard to win over Madison Avenue ahead of the IPO. Advertisers are intrigued by the Snapchat app, which reaches more than 150 million users daily, including 41% of 18- to 34-year-olds in the U.S., according to Nielsen.
But marketers and ad agencies have been frustrated with Snap’s tight controls on ad content and the long wait times some have experience getting ads approved by the platform. Others say those problems amount to growing pains.
Snap has been taking some steps to make life easier for advertisers. It released an “application programming interface” that helps advertisers buy ads through a more automated process. And it has lifted some previous restrictions, allowing marketers to target customers using email databases and other data sources.
The company’s revenue has grown quickly since it started running ads in 2014. Snap told investors earlier this year that it expected revenue of between $250 million and $350 million in 2016 and as much as $1 billion in 2017.
It is already ahead of the top end of its 2016 forecast, people familiar with the matter have said. In 2015, the company generated just $60 million in revenue. Snapchat loses money, according to people familiar with the matter, as it focuses on revenue growth and finding ways to make money off its big user base.
In September, the company renamed itself Snap in a bid to show that its ambitions extend beyond Snapchat. As part of the change it unveiled camera-equipped sunglasses, called Spectacles, that can record video in short bursts. The foray into hardware potentially gives Snap another source of revenue, but poses new challenges such as managing inventory.
Snapchat parent expected to go public as early as March
January 30, 2017
Snap Inc. plans to list its highly anticipated initial public offering on the New York Stock Exchange, in a big competitive victory for the Big Board.
The NYSE is expected to prevail over Nasdaq in a battle to woo the Snapchat parent, which is planning to go public as early as March, people familiar with the matter said.
Snap, which filed its IPO papers confidentially with the Securities and Exchange Commission last fall, is expected to disclose them publicly later this week. The so-called S-1 will include the listing plan, the people said.
The decision marks the latest big win for the Big Board as it seeks to be the listing venue of choice for high-profile technology companies.
It is also Snap’s latest major step toward an IPO that is expected to value the company at between $20 billion and $25 billion. That would make it the largest initial offering on a U.S. exchange since the 2014 debut of Chinese e-commerce company Alibaba Group Holding Ltd., which was valued at roughly $168 billion when it went public.
It's interesting to me that my 11 year old daughter prefers group video chat over texting. Don't get me wrong, she still texts, but she is always looking for newer/better video chat apps. She doesn't use snapchat/facebook messenger. iMessage is her choice for texting.
Snap’s IPO is poised to be the largest U.S.-listed technology debut since Alibaba in 2014
Feb. 2, 2017 5:20 p.m. ET
Snap Inc. publicly revealed plans for an initial public offering Thursday, putting the maker of popular messaging app Snapchat on track for one of the highest-profile stock debuts in recent years.
Though Snap didn’t specify terms in the filing, the offering is expected to value the company at between $20 billion and $25 billion, people familiar with the matter have said. If the deal goes as planned, it would be the largest U.S.-listed technology IPO since Chinese e-commerce company Alibaba Group Holding Ltd. made its debut at a $168 billion valuation in 2014.
Snap’s Thursday filing with the Securities and Exchange Commission gives potential investors their first detailed glimpse into the company’s finances ahead of the offering, which could come within weeks.
The company reported revenue of $404.5 million in 2016 and a loss of $514.6 million for 2016, compared with revenue of $57.7 million and a loss of $372.9 million a year earlier. Analysts and investors have expected the company to generate as much as $1 billion in revenue in 2017.
Snap said it had 158 million daily active users on average in the quarter ended in December, a 48% increase from the same quarter a year before.
Despite its millions of daily users and hundreds of millions in revenue, the company employed 1,859 workers.
Snap said it would use the ticker symbol SNAP and confirmed that it will list on the New York Stock Exchange, in a big competitive victory for the Big Board over the Nasdaq Stock Market.
Founded in 2011 by Evan Spiegel, Bobby Murphy and Reggie Brown while at Stanford University, Snap has raised a total of $2.4 billion from private investors. Its most recent funding round in May 2016 valued the company at $17.8 billion. Mr. Brown no longer works for Snap.
All that for a company that began as an ephemeral messaging app that allowed users to send photos that would disappear within 10 seconds. As the messaging service grew—with filters that allowed users to embellish their selfies with dog ears and clown faces—the app took off with millennials and especially teens, a notoriously difficult group for marketers to reach.
In 2013, Snap spurned an all-cash offer from Facebook for close to $3 billion because Mr. Spiegel was holding out in the belief that his company could get an even higher valuation. Snap was also being wooed by other investors and potential acquirers at the time.
Based in Venice, Calif.—and not in Silicon Valley—the company is positioning itself as a different kind of company—a hybrid of tech and entertainment with the 26-year-old Mr. Spiegel as its CEO.
Now it hopes investors believe its user growth and revenue won’t vanish as quickly as its messages.
Advertisers and publishers have looked to Snapchat, which reaches more than 161 million users daily for an audience that is turning away from television.
In addition to messaging, Snapchat users are also able to view video diaries from their friends that expire after 24 hours and see others curated by the company itself and by those submitted by partner publications, such as The Wall Street Journal.
Snap’s main source of revenue is selling ads on Snapchat that are slotted in between the stories viewers see. Marketers and users also can buy location-or-event-based geofilters and “lenses” that add quirky characteristics to photos and videos, whether to promote a McDonald’s restaurant or an event like a birthday party.
As many big tech firms initially do, Snapchat loses money as it focuses on revenue growth and finding ways to make money off its big user base.
In September, the company renamed itself Snap in a bid to show that its ambitions extend beyond Snapchat. As part of the change, it unveiled camera-equipped sunglasses, called Spectacles, that can record video in short bursts. The foray into hardware potentially gives Snap another source of revenue, but poses new challenges such as managing inventory.
The company has also been marketing itself through an untraditional campaign by buying advertisements on billboards and airport security bins that only feature its ghost-logo and bright-yellow color, and omitting its name.
Morgan Stanley and Goldman Sachs Group Inc. are lead underwriters of the IPO as listed in the filing.
Users under 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during quarter that ended Dec. 31, 2016.
Users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average during same period.
No mention of user stats (that I can see) for those over 34 years old.
Moreover, the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement. Snapchat also may not be able to penetrate other demographics in a meaningful manner.
For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period. Falling user retention, growth, or engagement could make Snapchat less attractive to advertisers and partners, which may seriously harm our business. Our Daily Active Users may not continue to grow. For example, although Daily Active Users grew by 7% from 143 million Daily Active Users for the quarter ended June 30, 2016 to 153 million Daily Active Users for the quarter ended September 30, 2016, the growth in Daily Active Users was relatively flat in the latter part of the quarter ended September 30, 2016.
-- Snapchat's "global average revenue per user, or ARPU, in the three months ended December 31, 2016 was $1.05, compared to $0.31 for the same period in 2015." Facebook's global ARPU was $4.83 compared to $3.73 in Q4 2015.
-- Snapchat's North American ARPU "in the three months ended December 31, 2016 was $2.15 compared to $0.65 for the same period in 2015." Facebooks was $19.81 compared to $13.70 in Q4 2015.
-- Stock offering is for non voting Class A shares only.
Our Capital Structure
We have three classes of common stock: Class A, Class B, and Class C. Holders of our Class A common stock—the only class of stock being sold in this offering—are entitled to no vote on matters submitted to our stockholders. Holders of our Class B common stock are entitled to one vote per share. And holders of Class C common stock are entitled to ten votes per share.
-- Lots of competition
Our business is highly competitive. We face significant competition that we anticipate will continue to intensify. If we are not able to maintain or improve our market share, our business could suffer.
We face significant competition in almost every aspect of our business both domestically and internationally. This includes larger, more established companies such as Apple, Facebook (including Instagram and WhatsApp), Google (including YouTube), Twitter, Kakao, LINE, Naver (including Snow), and Tencent, which provide their users with a variety of products, services, content, and online advertising offerings, and smaller companies that offer products and services that may compete with specific Snapchat features.
For example, Instagram, a subsidiary of Facebook, recently introduced a “stories” feature that largely mimics our Stories feature and may be directly competitive. We may also lose users to small companies that offer products and services that compete with specific Snapchat features because of the low cost for our users to switch to a different product or service. Moreover, in emerging international markets, where mobile devices often lack large storage capabilities, we may compete with other applications for the limited space available on a user’s mobile device. We also face competition from traditional and online media businesses for advertising budgets. We compete broadly with the social media offerings of Apple, Facebook, Google, and Twitter, and with other, largely regional, social media platforms that have strong positions in particular countries.
There's a common stereotype about Snapchat: It's beloved among teens and millennials, cryptic to everybody else.
Parent company Snap admitted the issue in the "Risk Factors" section of its IPO filing last Thursday, writing:
Moreover, the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics...Snapchat also may not be able to penetrate other demographics in a meaningful manner. For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period.
Snap also devoted almost 20 pages of the filing giving a detailed explanation of how its product works -- presumably for the older investors who know their kids love Snapchat but have never been able to figure it out for themselves. (Disclosure: I'm 47 and that description fits me to a T.)
But according to research from MoffettNathanson, Snapchat has already started to buck that stereotype. The firm found that the fastest growing cohort of Snapchat users is people over 35.
Specifically, 33 million U.S. users over 35 used Snapchat in the last quarter of 2016, compared with only 10 million the year before -- growth of 224 percent. Breaking it down further, growth is particularly fast among women over 35 -- 19.5 million unique users in the last quarter of 2016, up 320 percent from the previous year's 4.6 million.
Growth among users in the 24-to-34 age range was much slower, at 74 percent, and growth among 18-to-25-year-olds was only 24%.
Snapchat still has much smaller reach in the over-35 crowd than its competitors -- it reaches only 33% of the total U.S. audience over that age, compared with a whopping 88% for Facebook, 45% for Facebook-owned Instagram, and 42% for Twitter.
But the fast growth among older users suggests Snap won't be confined to a teenage ghetto, but has lots of room to expand.
As MoffettNathanson concludes, Snapchat is "not quite the rocket ship Facebook was off the launch pad," but "we also don't believe it will flame out and ultimately fail as spectacularly as Twitter."
Snapchat Parent Sets Valuation of Up to $22.2 Billion ; Disappearing-message app company sees IPO range of $14 to $16 a share
Feb. 16, 2017
Snap Inc. set a valuation for itself between $19.5 billion and $22.2 billion, as the disappearing-message app company nears its landmark initial public offering, the company confirmed Thursday.
The valuation range, which equates to $14 to $16 a share, is near the low end of the $20 billion to $25 billion range the Snapchat parent company had earlier targeted. The company and its underwriters will set a final IPO price based on feedback from investors in a roadshow that is about to begin.
Investors won’t get any voting power with shares purchased in Snap’s initial public offering, a contrast to most public companies, and voting rights are concentrated among the company’s two active co-founders.
Following the offering, Chief Executive Evan Spiegel and Chief Technology Officer Robert Murphy will control the voting rights for about 88.5% of the company.
But some investors have questioned whether Snap is worth the valuation it is seeking. They cite slowing growth in its daily average user base, which recently stood at 158 million; increasing competition from Facebook Inc.; and the limited control new shareholders would have.
Snap said the offering would provide up to $2.3 billion in net proceeds, if the IPO prices at the $15 midpoint of the range and if the underwriters exercise their full purchase rights.
Snap will market the offering to mutual funds and hedge funds in meetings Monday in London, according to people familiar with the matter. After that, the meetings, which are typically held in hotel ballrooms, will move to New York and other cities. The shares could be priced as soon as March 1 and begin trading the following day on the New York Stock Exchange under the ticker “SNAP.”
Upon the closing of the offering, Mr. Spiegel will be granted preferred stock representing another 3% of the company’s shares, worth about $551.4 million at the midpoint range, the company said.
Snap has now closed that pop-up, and tells me “Snapbots will continue to land in surprising locations around the U.S. following a brief “nap” “. Buyers should expect to wait two to four weeks for their Spectacles to ship, and they can also buy $49.99 charging cases and $9.99 charging cords, which will no longer be sold on Amazon.
As for why Snap is expanding Spectacles beyond its buzzy limited release strategy, a spokesperson explains
“As Evan shared in his interview with the WSJ, when we launched, the idea was : ‘We’re going to take a slow approach to rolling them out,’ says Spiegel. ‘It’s about us figuring out if it fits into people’s lives and seeing how they like it.’ Response has been positive since November’s launch so we’re now happy to be able to make Spectaclesmore readily available — especially for those in the US who have not been able to make it to a Snapbot.”
Despite that positive response, Snap admitted in its IPO filing that “The launch of Spectacles . . . has not generated significant revenue for us” and notes “We expect to experience production and operating costs related to Spectacles that will exceed the related revenue in the near future”.
Snap doesn’t necessarily need to make money directly from Spectacles if it can use them to get more people creating and watching Snaps. But showing it can earn real revenue from hardware could bolster confidence in its public offering.
As Snap Inc. prepares to price its initial public offering, fear of missing out on the deal appears to be one of investors’ biggest concerns.
The parent of the popular disappearing-message app Snapchat is on track to price its initial public offering above its target of $14 to $16 a share, people familiar with the offering said. At $17 or $18, where some of the people said the deal is expected to price, the company would be valued at as much as $25 billion.
If Snap prices well and the stock rises Thursday, when it is expected to make its debut on the New York Stock Exchange, the IPO could awaken what has been a largely dormant tech IPO market, analysts, investors and bankers said.
“People love the space, and it isn’t like there’s a new entrant every quarter or every year even,” said Sean Stiefel, portfolio manager at Navy Capital LLC, who said he is buying into the deal.
Snap executives are taking unusual steps to try to ensure the IPO’s success, people familiar with the deal said.
The company has said roughly one-quarter of its planned “float” -- the total number of shares that will be sold in the offering -- would be subject to a lockup of one year before they can be sold. The company planned to sell those shares to a consortium of existing investors, who got in before the IPO process began, people familiar with the deal said. Other investors will be locked up for a shorter period. Such moves could damp volatility by limiting the number of short-term stockholders who can jump in and out.
Snap’s chief strategy officer, Imran Khan, has taken a major role alongside lead underwriters Morgan Stanley and Goldman Sachs Group Inc. and is helping to make decisions about which firms receive an allocation of the new shares, said people familiar with the deal. Such decisions are typically handled largely by the firm’s underwriters. Before Mr. Khan joined Snap, he was the head of internet banking at Credit Suisse Group AG, where he helped lead Alibaba Group Holding Ltd.’s IPO in 2014.
Snap also hopes to avoid a surge in shares, some of the people said, which can be viewed as untenable and suggests the company and selling shareholders could have fetched a higher price for the shares in the offering.
After the market closes Wednesday, Snap plans to hold a call with bankers on the deal to finalize at what price it will sell the 200 million shares in its IPO, people close to the offering said. Trading should begin shortly after the stock market opens Thursday, under the symbol “SNAP.”
Snap IPO prices at $17 a share, above expected range
Snap priced its public offering at $17 a share on Wednesday, two sources told CNBC. The company is scheduled to start trading Thursday.
At 200 million shares, Snap will have raised $3.4 billion and will be valued at nearly $24 billion. The IPO is 10 times oversubscribed, the sources said.
Sources had told CNBC earlier this week that investors were expecting a pricing of $17 to $18 per share, above the $14 to $16 per share range originally given by the company.
The pricing reflects what Wall Street's top investment firms think about the stock, and telegraphs how the year's most anticipated IPO might fare in the public market on Thursday.
The company behind Snapchat — an ephemeral photo messaging app that's viral among teens — has presented investors with some unique challenges. It's unclear how exactly the California company plans to make a profit, especially with daily active user growth slowing. Shareholders will also get negligible voting rights with the stock.
Snapchat slated to have the highest price-to-sales ratio of any major U.S. IPO
CHAPEL HILL, N.C. — Simple math is all you need to conclude that Snapchat’s upcoming IPO is an incredibly risky bet.
That’s because the company’s sales will have to grow at a blistering pace in order to support the price at which it is currently slated to come to market. Though anything is possible, you probably should go to Las Vegas rather than Wall Street if you want to place that kind of high-risk bet.
I base these comments on a simple valuation model that focuses on sales rather than earnings. That’s crucial for startups, since most of them—like Snapchat—have yet to produce any profit by the time they go public. Price-to-earnings ratios therefore are useless for valuing them.
Price-to-sales ratios, in contrast, speak volumes.
Snapchat parent Snap Inc., for example, will at IPO have a price-to-sales ratio (PSR) of 55.6, assuming it comes to market at the midpoint of the $20 to $25 billion range reported by The Wall Street Journal. That would be higher than any other major U.S. IPO in decades—and maybe ever. (I base this on data from Jay Ritter, a finance professor at the University of Florida and academia’s leading expert on the IPO market; included are all U.S. IPOs since 1980 that, when coming to market, had at least $200 million of sales in 2016 dollars.)
PSRs almost always decline as a company grows, however, and that’s the Achilles' heel of a high PSR. In order for its stock price to not fall along with its ratio, revenue must grow just as fast as the ratio falls.
How far does the typical company’s PSR fall over its first five years as a publicly traded company? Google’s, for example, fell from 10.3 to 4.9; Facebook’s fell from 25.3 to 11.1. In fact, according to FactSet, the median internet company’s PSR on its fifth birthday was 2.8.
Regardless of which of these numbers we use, Snapchat’s sales will have to mushroom over the next five years. If we assume its ratio in five years will be equal to what Google (now Alphabet) had on its fifth birthday as a publicly traded company, Snapchat’s sales will have to grow more than 10-fold—just in order for its parent company’s stock price to stay even.
That works out to an annualized five-year revenue growth rate of 63% per year. To put that in context, consider that U.S. IPOs that came to market between 1996 and 2007 had average five-year revenue growth rates of 26% annualized. (This according to research conducted by Ritter and two colleagues.)
Of course, you wouldn’t bet on a company if you didn’t expect it to make money. So breaking even is nowhere good enough. That in effect means you have to bet that Snapchat’s sales will grow by even more than 10-fold over its first five years. A lot more.
For illustration’s sake, let’s assume that you require a 15% annualized profit in order to compensate you for the high risk of Snap stock (higher than the overall market’s historical rate of 10% annualized, in other words). If so, then its five-year revenue growth ratio will have to be 87% per year. In other words, the company will have to nearly double its revenue every year for five years in a row.
To put that in context, consider that Google’s five-year revenue growth rate after IPO was 57% annualized. Facebook’s was 47%.
To repeat, it’s not impossible for Snap to jump over these higher barriers. As Professor Ritter pointed out to me in an interview, in the “winner take all” internet economy, a successful company could very well live up to the growth expectations embedded in a high PSR.
But, by definition, there are far more losers than winners in a “winner take all” arena. How confident are you that Snap won’t be one of them?
Don’t like the numbers I’ve used in this analysis? Be my guest and play around with other assumptions about how much you expect the stock price to increase over the next five years and what its PSR will be then. No matter how you slice and dice it, however, you will find that Snap is an incredible long shot.
According to Snap's latest S-1 filing with the SEC from Feb. 27, Spiegel and Murphy plan to sell 16 million shares each on Thursday. The company has been projected to open at $22 to $24 a share, after it priced its public offering at $17 a share. It's just a small fraction of the number of shares the co-founders own in Snap Inc. Both men will still have 97,164,485 after Thursday's sale.
They're not the only ones who stand to make a bundle. After Spiegel and Murphy, these men are among the top individual shareholders at the company.
Mitchell Lasky, general partner at Snap investor VC firm Benchmark, will sell 10,695,868 shares. At the $22 price, he stands to make at least $235.3 million.
Snap Chairman Michael Lynton will sell 54,907 shares, which will give him a cool $1.2 million minimum.
Other investors who will make bank include:
Benchmark Capital Partners will sell 10,695,868 shares, worth at least $235.3 million at the $22 a share price.
Lightspeed Venture Partners will sell 4,632,890 shares, worth at least $101.9 million.
General Catalyst Group will sell 572,904 shares, worth at least $12.6 million.
10-06-2016, 01:38 PM
“. Buyers should expect to wait two to four weeks for their Spectacles to ship, and they can also buy $49.99 charging cases and $9.99 charging cords, which will no longer be sold on Amazon.
than Twitter or not?
