Snap’s Shares Post a 40% gain on listing on the NYSE
Snapchats hyped IPO was listed yesterday on the NYSE at $24 per share, a 40% gain for the select few investors who got them at the IPO price of 17$.
This values the company at $24 billion, and is the largest tech IPO of a US based company after facebook in 2014. Snap’s stock went as high as $26.05, before closing at $24.48 per share.
The interest in Snap is because of the higher user engagement, active users average use is as much as 18 times a day.It also has launched a wearable – spectacles in a bid to increase its revenue.
The threats the company is facing is with from other messaging Apps like the Facebook owned Instagram & Whatsapp and other new players where identical features like Snapchats are introduced.
Investors are nonetheless lapping up shares of the company despite the surprising feature of no voting rights and unpredictable revenue stream as they search for companies with high growth potential.
While many commentators are voicing concerns on transparency, investors do not seem concerned and that is due to the fact that the below 30’s founders have to freedom to innovate without worrying worrying about what investors want them to do. As long as the innovation creates shareholder value, markets will keep the value up.
If your preferred social messaging app is not Snapchat then chances are that you are a 25+ fuddy duddy using facebook. The millenials are all on Instagram (400 million daily users ) & Snapchat (160 million daily users)
Snapchat is owned by California based Snap.Inc and is expected to open up its IPO for subscription on 1st March 2017. Snap’s IPO, the first for a social media company since Twitter more than three years ago has set the valuation about USD 22-25 billion.
Snapchat started in 2012 as a free mobile app that allows users to send photos that vanish within seconds. Its 160 million active users, about 60 percent of whom are aged 13 to 24, makes it an attractive way for advertisers to reach that demographic.
Snap was incorporated by founders Evan Spiegel, Bobby Murphy, and Reggie Brown, former students at Stanford University. The mobile app is a disappearing photos application that users can share with their friends. Unlike Facebook, where a picture posted stays for infinity, an upload on snapchat is more candid as it has a life span of only twenty four hours and depicts “real” life as is..It also has some cool filters and features, which engages young users. Facebook has rolled out a lot of snapchat’s features on Instagram & whatsapp, its own messaging services.
Snap’s investors are high profile. General Atlantic, Sequoia Capital, T. Rowe Price and Lone Pine. Previous rounds of funding had included Fidelity Investment, Kleiner Perkins Caufield & Byers and Yahoo Inc. Earlier this month, Alphabet Inc’s venture capital arm CapitalG, earlier known as Google Capital also disclosed an investment in Snapchat.
Snap plans to offer 200 million shares and will trade on the New York Stock exchange under the ticker “SNAP”. The total offering will rise to 230 million shares if the underwriters exercise their option to purchase the additional 30 million shares up for grabs.The offer is between USD 14 -16 per share.
Snap estimates that the net proceeds from the sale of shares will be USD 2.1- 2.3 billion . This is on the basis of an estimated price USD 15 per share offer price. At USD 16 per share, the total amount raised would be USD 3.6 billion.
A Snapchat IPO is seen by many investors as a trendsetter for the largest so-called “unicorns,” private, venture-backed companies that are valued at more than USD 1 billion.They are also called “decacorns,” which include Snapchat, car-sharing/hiring company Uber Technologies Inc and home-sharing /renting company Airbnb.
None of these new decacorns have yet tested the public market so it will be important to watch whether the astronomic valuation is justified.
Snapchats only source of revenue is advertising, which is deemed to be restricted considering its younger user base.In 2016, the company generated revenues of USD 404.5 million, a sixfold increase from the USD 58.7 million made in 2015, according to a regulatory filing with the U.S. Securities and Exchange Commission. However, net losses widened to USD 514.6 million last year from USD 372.9 million in the year before last.
Snap has tried to expand its revenue stream in September 2016, describing itself as a camera company, and earlier this month it debuted its USD 130 video-camera sunglasses. The glasses are equipped with a camera that connects wirelessly to a smartphone to take and send “snaps” – the company’s terms for video and photo messages sent on its app.
Tech IPO’s performance has not been one way up always. In 2016, 123 U.S. technology companies went public,raising USD 7.1 billion, a 58 percent decline in proceeds and 20 percent drop in the number of offerings from 2015.
Another interesting titbit about Snaps IPO is that the shares offered will have no voting rights which is a first , the cofounders own more than 88% of shares so will have a control over all the business matters. Snapchat is being compared to twitter,which is not a high praise as twitter is seen to be struggling beyond a point to grow and monetise its user base.
Given the challenges and opportunities for Snap, it will be interesting to see the response to the IPO next week of this hugely popular mobile social networking App.