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Update: Snap seeks to raise as much as US$3.2b in initial offering

Thursday, February 16, 2017 - 21:41

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Snap Inc. is seeking to raise as much as US$3.2 billion in its initial public offering in what could be the third biggest technology listing of the past decade.

[NEW YORK] Snap Inc is seeking to raise as much as US$3.2 billion in its initial public offering in what could be the third-biggest technology listing of the past decade.  

The maker of disappearing-photo application Snapchat is offering 200 million Class A shares for US$14 to US$16 apiece, according to a filing Thursday.

At the high end of the range, that would give it a market value of about US$18.5 billion, based on the total shares outstanding after the offering.  

Of the technology and communications IPOs since 2007, Snap’s offering is poised to trail only Alibaba Group Holding Ltd’s US$25 billion share sale and Facebook’s US$16 billion raise. It’s also set to be the first US listing from that industry this year, according to data compiled by Bloomberg.  

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The market valuation that Snap is seeking – between US$16.2 billion and US$18.5 billion depending on the price at which shares are sold – is less than the company had been aiming for on its path to listing. In November, the company was eyeing a market value of US$20 billion to US$25 billion, a person familiar with the matter said at the time. A month earlier, that range was closer to US$25 billion to US$35 billion, people familiar with the matter said.  

On a fully diluted basis, which accounts for options and convertible preferred stock conversions, Snap would have a valuation of between US$19.5 billion and US$22.2 billion, people familiar with the matter said earlier.

Since last year, the secretive company has had to share details on its losses and slowing user growth. Snap also revealed that the shares being sold in the IPO will have no voting power – an unprecedented move for a US listing.  Snap’s revenue climbed about sixfold last year to US$404.5 million, compared with US$58.7 million in 2015.

Net losses widened to US$514.6 million from US$372.9 million in that period.  At the high end of the price range, Snap’s asking investors to buy into a stock that’s valued at 19.7 times forward 12-months advertising sales, close to the 19.4 times that Facebook had at the time of its IPO. Fellow social media peer Twitter Inc was valued at 13 times, according to data from Bloomberg Intelligence.  

Next up for Chief Executive Officer Evan Spiegel and fellow executives will be the roadshow, where management travel to cities including Los Angeles, San Francisco and New York to pitch the stock to prospective investors.  

While management is sure to tout its revenue increases, Snap may face questions about its user growth, which slowed in the second half of 2016.

By the fourth quarter, average daily active user growth fell below 50 per cent in those three months for the first time since at least 2014, according to the deal prospectus.  

Snap is aiming to sell 145 million shares, with the proceeds going toward operating expenses, capital expenditures and for potential acquisitions.

The remainder of the shares offered come from selling stockholders, including Benchmark and Lightspeed Venture Partners.  

Snap co-founders Spiegel and Bobby Murphy each plan to sell 16 million Class A shares, which could bring in as much as US$256 million apiece. After the offering, each will maintain a 44 per cent control over the votes.

BLOOMBERG

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