- Snap Inc.
Snapchat has transformed itself from a “sexting app” founded by Stanford frat bros to a camera company on the verge of a $24 billion initial public offering.
Its Wall Street debut on Thursday is already being hotly anticipated as the tech IPO of the year.
Here’s what you need to know about the IPO as the company, now known as Snap Inc., starts trading.
The basics: Snap Inc. is scheduled to start trading on the New York Stock Exchange on Thursday under the ticker SNAP after pricing its IPO at $17 a share. That gives it a $24 billion valuation.
- REUTERS/Brendan McDermid
Snap sold 200 million shares at $17 apiece, valuing the company at $23.8 billion, according to a person familiar with the matter. The majority of the allocation went to mutual funds that are likely to hold the shares for the long term, the person said.
Some of Snap’s new investors won’t be able to sell the stock for a year.
- REUTERS/Lucas Jackson
As many as a quarter of new shares sold in Snap’s IPO could go to long-term investors who will be required to hold the stock for a year, the company said in a regulatory filing. In exchange for a guaranteed block, the big investors may agree not to dump the stock – though Snap’s filing says it may waive the lockup requirement.
It’s also selling only nonvoting shares because its CEO Evan Spiegel and cofounder Bobby Murphy want to retain control.
This is a rare move for a company, and a Securities and Exchange Commission committee is already looking into what it means for investor transparency. A report in The New York Times said the founders tightened their grip on the company over a dispute with its first investor.
Despite its roots as a “sexting app,” it’s much more than that now. Spiegel has been pitching Snap as a camera company: “Before, cameras were the perfect way to save or record something you saw. And they sort of helped augment memory. But now cameras augment the way that we talk.”
“Snap is a camera company,” Spiegel says at the beginning of the roadshow video. “We feel like we’re really at the beginning of what cameras can do.”
Spiegel compares Snapchat’s camera to a mouse cursor on a desktop computer. “With Snapchat, the camera has become the primary input for the phone.”
“I think Snapchat really tapped into that human desire to communicate in a way that feels like it’s face-to-face, even if you’re far away,” Spiegel says.
Labeling it a “camera company” and not a social network makes Snap hard to compare. Investors say there are four key issues they’re now dealing with when it comes to Snap’s IPO. The first is its valuation.
- REUTERS/Lucas Jackson
Snap’s valuation was described as “smart” and conservative. At the same time, Snap has no profits, and one venture-capital firm predicts it won’t stop the red ink from flowing until 2020.
Snapchat’s user growth is slowing. So far, Snap has blamed the problem on bad product updates that made it hard to use on Android.
To boost its numbers, Snapchat acknowledged that it would need to cater to Android users too.
“To continue growth in user engagement, we will need to prioritize development of our products to operate on smartphones with Android operating systems,” the company said in its S-1 filing. “If we are unable to improve operability of our products on smartphones with Android operating systems, and those smartphones become more popular and fewer people use smartphones with iOS operating systems, our business could be seriously harmed.”
Then there’s the money question: Can Snapchat sustain its revenue growth?
- Snapchat via The Motley Fool
Snap has only just started focusing on monetizing its users through advertising, and Goldman Sachs has forecast that Snap will increase revenue fivefold by 2018. Some are concerned about Snap’s niche demographic and the management team’s ability to execute. One prospective investor said the success of the sales/advertising part of Snap’s business was “TBD.”
And the elephant in the room that might stomp on Snapchat’s IPO: Facebook.
- Getty Images
The question of whether Snap should be concerned about Facebook – and Instagram, which Facebook owns – was an important element of the roadshow. Snap has a reputation for innovation, but Facebook is a $390 billion giant with deep pockets and a huge user base.
But that’s not turning away investors. Some are already predicting it to pop on day one.
- Lucas Jackson/Reuters Pictures
“Would I be surprised to see it double on the first day? Absolutely not,” one fund manager told Business Insider. But some people also believe that the stock is priced for perfection and that there are considerable risks.
At the $17 share price, a lot of people will get rich from the IPO. Spiegel’s stake alone in Snap is worth $4.5 billion. Now it’s Wall Street’s turn to value the company.
- (Photo by Tommaso Boddi/Getty Images for Baby2Baby)