It’s the biggest, and most high-profile IPO since Alibaba, and it’s happening today! Although Snap’s post IPO valuation – at $23.8 billion – is just a shade less than the figure Alibaba raised – $25 billion. Phew-wee Jack Ma!
Still, by anybody’s standards, $3.4 billion, for 200 million shares at $17 for a disappearing messaging app, with the deal up to 10 x oversubscribed according to some sources, is to be admired. Congratulations, Mr Spiegel, we weren’t sure you’d make it this far.
Much like its predecessors, Facebook, who had a rocky IPO but have been “smashing it” ever since, and Twitter, who smashed their IPO but haven’t made a penny since, Snapchat are pinning their hopes for profitability on advertising revenue – because right now Snap is losing about half a billion a year.
The ad revenue market is expected in some quarters to grow from around $66 billion today to $196 billion by 2020 – which is one heck of an argument for backing Snap, whose user base stands at around 158 million daily active users, with 2.5 billion “snaps” being sent every day, by a demographic who are right in the millennial / Generation X sweet spot.
Even so, profitability seems a long way down the road – indeed Snap’s prospectus even warns it may never happen!
Whatever does happen, Spiegel and co-founder Robert Murphy will surely be set for life – both are becoming billionaires as we speak – and will also retain control of decision making at the company because of the way the deal is structured, with most buyers receiving common A stock, which come without voting rights.
Class B stock comes with one vote per share, whilst class C, which Spiegel and Murphy are getting, comes with 10 votes per share. We always said you’re better off with Class C’s than Class As ; )
Interestingly, SNAP stores most of its information in Google Cloud, and has committed to spend at least $2 billion with the company’s storage “unit” over the next five years. It helps to have powerful friends.
The company now has 1.859 employees, but no formal HQ; in its prospectus, SNAP describes its staff as “tight-knit”, and “kind”.
Kind how? “When we say kind”, the prospectus reads, “we mean the type of kindness that compels you to let someone know that they have something stuck in their teeth even though it’s a little awkward.”
Thanks for clearing that one up, guys.
The only other issue with SNAP’s business model is that its services are kind of easy to copy, especially if you are Facebook, Instagram, Twitter, Medium, or any other Silicon Valley, or indeed anywhere-else-in-the-world-based social media app or platform.
So a lot of the success will depend on maintaining that cool edge. Now that’s pressure – but as they say, pressure makes diamonds!