Breaking Down Snap’s IPO

IPO Date: 3/2/17 – Ticker: SNAP

Snap Inc., the company that owns teenage and millennial heartthrob Snapchat is set to go public this year. The tech world is a dark jungle and companies have been known to be gobbled up the day before their planned IPO (Just look at AppDynamics for instance). However, assuming everything goes as planned, Snap Inc is the favorite for the biggest tech offering for 2017. Let’s dig into all the juicy information that lies in store for potential Snap Inc investors.

Background

Snapchat recently rebranded in a similar move to Google’s restructuring that brought the corporate giant Alphabet onto the scene. It is now a camera company bearing the new ‘Snap Inc.’ banner. The company’s portfolio includes Snapchat (viral messaging app) and Snapchat Spectacles (hardware that is tough to acquire, making them a valuable and prestigious item to own among millennials).

Snap Inc is riding into the IPO on the strengths of its great teenage and millennial user base as well as multiple potential revenue streams such as advertising and hardware sales. It also offers a rich catalog of unique content developed and brought on the platform by its media partners.

Snap Inc has already filed its SEC documents, and from them, we can glean that the company’s valuation lies between 18 and 23 billion USD. This potentially makes it the biggest tech IPO since 2014, when Alibaba went public.

Financial health

Snap raked in $404.5 million in 2016. This was a massive improvement from revenue brought in 2015, which was $58.7 million. There is a price difference of $345.8 million. However, Snap totaled a net loss of $514.6 million in 2016, which is higher than the net loss of $372.9 million that it received in 2015. One thing that is important to note is that in its SEC filing, Snap had to cite that it “may never achieve or maintain profitability.” While this is a legal requirement, it’s a warning that diligent investors must consider carefully before making their final decision.

Snap is hoping to raise around $3.2 billion from offering $200 million Class A shares that will be priced between $14-16 per share.

Other Key IPO points

The following are other important metrics and data points to consider:

  1. 98% of Snap’s revenue in 2016 was from advertising
  2. After the IPO, Snap will have 1.16 billion shares
  3. Underwriters for the public offering include Morgan Stanley, Goldman Sachs, Barclays, Credit Suisse, Deutsche Bank and JP Morgan.
  4. After a few pre-IPO road shows, Snap will officially price its IPO on March 1, after the market closes.
  5. Snap had 158 million daily active users in the last quarter of 2016, though the number of daily active users has been decreasing in 2016, from a high of 66% in the second quarter to 55% and 46% in the last two quarters respectively.

Rivalry with Facebook

Mark Zuckerberg and Co. have been on a revenge streak ever since Snap declined Facebook’s $3 billion offer in 2013. Facebook has copied Snap’s features in its products, introducing Instagram Stories in August 2016 and launching a new Status tab on Whatsapp recently. This has had an effect on Snap, with Snapchat’s story engagement reducing by 15-40%.

The saving grace is that the 158 million daily active users appear to be hooked to Snap. How else would you explain each user opening the app 18 times daily on average?

To be continued in Part two