Snap Inc Prices Initial Public Offering at $17 Per Share
Snap Inc., the parent company of Snapchat finally priced its initial public offering at $17 per share, above the expected range of $14 to $16. Snapchat has been dubbed as the biggest IPO since Chinese e-commerce giant Alibaba BABA went public in 2014.
Snap Inc. has offered 200 million Class A shares, which will help it raise $3.4 billion and the company will be valued at nearly $24 billion. Snap Inc. will begin trading on NYSE starting from Mar 2, 2017 under the ticker symbol SNAP.
Per sources, the IPO has been more than ten times oversubscribed, making it a big hit. Reuters has quoted people familiar with the matter stating that “Snap could have priced the IPO at as much as $19 a share, but the company wanted to focus on securing mutual funds as long-term investors rather than hedge funds looking to quickly sell.”
The IPO has a host of underwriters including Morgan Stanley MS and Goldman Sachs. However, reportedly, Snap Inc’s new shareholders cannot vote as Class A shares carry no voting rights. This is because the company does not intend to dilute its power to make decisions. Snap will have a three class share structure and founders Evan Spigel and Bobby Murphy will have the maximum voting rights through the ownership of Class C shares, which carry 10 votes per share. Class B shares carry one vote per share.
Snapchat has also been widely considered to be the most hotly anticipated tech IPO since Facebook Inc. FB in May 2012. Since its IPO, which was a debacle of sorts, Facebook, which carries a Zacks Rank #3 (Hold) has come a long way. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
In the past five years, Facebook shares have registered growth of 261.55% compared with the Zacks Internet Services industry’s gain of 146.42%.
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Snapchat, a relatively new entrant in the social media space, has become very popular among teens and millennials primarily because of its “ephemerality”. Photos/videos and text sent to friends via Snapchat disappear after sometime. Reportedly, Snapchat has over 158 million daily active users.
Such high daily activity is extremely attractive for advertisers. Snapchat has been offering some serious competition to other social media networks like Facebook and Twitter Inc. TWTR in terms of attracting teenagers/young adults to its platform. Notably, this particular group of the demography, teenagers, is most attractive to social media companies for the ad dollars they bring in.
In fact, Facebook and its subsidiary platforms like Instagram have started to emulate Snapchat features to boost user growth and engagement levels.
What Lies Ahead?
There are many analysts who believe that Snapchat might not be able to lure more investors. Some analysts claim that this might be due to the fact that interest in social media stock continues to ebb. Since Snapchat has just one source of revenues i.e., advertising, which only began in Oct 2016, it may be a concern for investors. Also, it just attracts a particular segment of the demography.
Analysts argue that teens are inclined to sudden changes in preferences. Media reports have quoted Snap “admitting” that increasing competition from big players (read Facebook), which have better resources, is a big threat as they can easily lure away users to their platform.
Snap’s financials are also something that might deflect interested investors, opine some analysts. The company’s revenues are growing but losses are ballooning at the same time. Reportedly, in 2016, Snap’s revenues of $404.5 million, were nearly six times higher than 2015 revenues but net loss for the year increased 38% to $514.6 million. Notably, Snap’s valuation is about 60 times its revenues.
However, it seems that Snapchat has taken due note of all these. At the Morgan Stanley conference held a couple of months back, CEO Spiegel was quoted by media reports as saying that 50% of its new user base now comprises users over the age of 25. Plus, Snapchat, in order to diversify its revenue base, has started selling Snapchat spectacles worth $130.
It remains a wait and see story as to what the future holds for Snapchat.
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