New York - Snap, maker of the disappearing photo app
dependent upon the fickle favour of the millennial demographic, is going public
at a valuation at least twice as expensive as Facebook, and four times more
costly than Twitter.
Snap sold 200 million shares in its initial public
offering at $17 each, according to a statement Wednesday. At that price, it has
a market value of about $20 billion, based on 1.16 billion shares outstanding
after the IPO. That implies a multiple of about 21.4 times EMarketer’s estimate
for Snap’s 2017 advertising sales.
It’s a “nosebleed” valuation, but “there’s a nosebleed’s
worth of demand,” said David Kirkpatrick, chief executive officer of Techonomy
Media.
Snap raised $3.4 billion in its IPO, pricing shares above
the marketed range, in the biggest social-media IPO since Twitter more than
three years ago. It’s also the first tech company to list in the U.S. this
year.
“There is a huge amount of people who really just want to
get in on the hot new thing, who see this as the first opportunity of its type
in a number of years,” Kirkpatrick said in an interview on Bloomberg TV. Still,
“they’ve got some serious work to do to actually make a real business that
makes profits.”
Real business
Snap, which posted a net loss last year of $515 million,
even as revenue climbed almost sevenfold, has some things to prove. It needs to
continue to increase revenue per user, address slower user growth - which fell
below 50 percent in the fourth quarter for the first time since at least 2014 -
and inch closer to profitability.
Facebook, with about 1.2 billion active daily users on
its flagship platform and 1.2 billion on its messaging tool WhatsApp, trades at
a multiple of about 10.5 times revenue estimates for this year. Facebook’s
Instagram introduced a video-reel feature - similar to Snapchat’s stories -
that already has 150 million daily users. That’s in line with Snap’s daily
active count of about 158 million.
While Facebook’s shares languished for more than a year
after its IPO, the stock surged once the company’s strategy of betting on
mobile software started to pay off and revenue and profit exceeded estimates.
Read also: Snap's youthful founders show no fear in race to IPO
Twitter, with more than 300 million monthly active users,
comes in at 4.8 times projected revenue. The social media site had an impressive
debut, then proceeded to stumble as user growth slowed.
Snap faces what those companies faced, with one proven
product to date under its belt.
First-day pop
The Los Angeles-based company offered the shares in its
IPO for $14 to $16 each. Orders for the offering were concentrated at about $17
to $18 a share, people familiar with the process said Tuesday. Demand outpaced
the number of shares being offered by a multiple of 10, people familiar with
the situation said.
Including unexercised stock options and other
convertibles for a total of 1.39 billion fully diluted shares, Snap would have
a fully diluted value of about $23.6 billion, according to a person with
knowledge of the matter, who asked not to be identified because the information
is private.
Given the interest, Snap could have priced the shares at
$19 each, the person said, but executives wanted to ensure that shares would
make a decent gain in their debut.
The stock will start trading Thursday, listed on the New
York Stock Exchange under the symbol SNAP. The debut may benefit from good
timing: US equities advanced Wednesday, setting records on the heaviest trading
volume so far this year.
Morgan Stanley and Goldman Sachs Group led the offering.
Goldman Sachs will be the stabiliation agent, ensuring the first day of trading
goes smoothly.