Snap sets price range for ini­tial pub­lic of­fer­ing

The Snapchat maker val­ues it­self at up to $22 bil­lion ahead of highly awaited IPO.

Los Angeles Times - - BUSINESS - By Paresh Dave

Snap Inc. set a start­ing price range of $14 to $16 per share for its ini­tial pub­lic of­fer­ing, which at the top end could value the Los An­ge­les tech­nol­ogy com­pany at more than $22 bil­lion.

The IPO of the Snapchat mo­bile app de­vel­oper is ex­pected to be the largest ever for a Los An­ge­les firm and the big­gest since Alibaba and Face­book.

The share prices, which were dis­closed in a se­cu­ri­ties fil­ing Thurs­day, are non­bind­ing. But they set the stage for Snap of­fi­cials, led by Chief Ex­ec­u­tive Evan Spiegel, and in­vest­ment bankers at Mor­gan Stan­ley and Gold­man Sachs to hold dis­cus­sions with in­vestors around the world about their in­ter­est in bet­ting on the nearly 6-year-old com­pany. Sched­uled gath­er­ings in­clude an event in Lon­don on Mon­day and in Los An­ge­les on Feb. 27.

The com­pany started as a self-de­struc­t­ing photo mes­sag­ing app but has added fea­tures for tex­ting, video shar­ing, money trans­fers and news to be­come the lead­ing en­ter­tain­ment hub for 158 mil­lion daily users — most of them young adults.

Snap is putting about a fifth of the com­pany up for pub­lic sale to in­vestors to fund hir­ing, taxes, tech­nol­ogy, ac­qui­si­tions, mar­ket­ing and other ef­forts in the com­ing years. At a pro­posed price of $16 per share, the sale would haul in nearly $2.5 bil­lion, in­clud­ing an ex­tra al­lot­ment set aside for after the ini­tial rush.

Up to $1.1 bil­lion in ad­di­tional shares will be sold by ei­ther com­pany of­fi­cials or in­vestors who were able to

get an early stake in Snap through pri­vate deals in the last five years.

Of those in­vestors, San Fran­cisco ven­ture cap­i­tal firm Bench­mark is sell­ing the most valu­able chunk: $320 mil­lion. Un­load­ing those shares would rep­re­sent 8% of Bench­mark’s stake, leav­ing the firm with about $1.9 bil­lion worth of Snap shares. It would have 2.7% vot­ing con­trol over the com­pany.

Pos­si­ble in­comes among other ven­ture cap­i­tal firms in­clude $139 mil­lion at Snap’s first in­vestor, Light­speed Ven­ture Part­ners, for sell­ing 5% of its hold­ing; $17 mil­lion for Gen­eral Cat­a­lyst for also sell­ing 5%; and $3 mil­lion for SV An­gel for sell­ing 4%. Sev­eral other uniden­ti­fied share­hold­ers also plan to of­fer parts of their in­vest­ments, ac­cord­ing to a se­cu­ri­ties fil­ing Thurs­day.

Snapchat co-founders Spiegel and Bobby Mur­phy would each get $256 mil­lion from sell­ing shares. Spiegel also stands to re­ceive about $589 mil­lion worth of shares — at the $16 price — over the next sev­eral years once the IPO is com­pleted. That bonus will slowly give Spiegel more vot­ing con­trol than Mur­phy, the chief tech­nol­ogy of­fi­cer. Im­me­di­ately after the IPO, they each would have about 44% of votes.

Snap Chair­man Michael Lyn­ton, who re­cently an­nounced his res­ig­na­tion as head of Sony En­ter­tain­ment, is cash­ing out of as much as $2 mil­lion in shares. He’s ex­pected to keep ad­di­tional shares val­ued at $47 mil­lion.

Al­to­gether, Snap would have about 1.4 bil­lion shares out­stand­ing, in­clud­ing those tied up as stock op­tions and sim­i­lar com­pen­sa­tion for its nearly 2,000 em­ploy­ees, board mem­bers and ad­vi­sors.

The de­fin­i­tive size of the wind­falls de­pends on the fi­nal price per share. That’s un­likely to be de­ter­mined ear­lier than March 1.

So­cial me­dia gi­ant Face­book Inc., which many in­vestors and an­a­lysts view as Snap’s main com­pe­ti­tion, first pro­posed a pric­ing range of $28 to $35 for its shares be­fore its IPO in 2012. The com­pany ul­ti­mately locked in a price of $38 and a val­u­a­tion of $104 bil­lion.

Though Snap’s IPO has gen­er­ated great in­ter­est after a dearth of new list­ings last year, the com­pany is play­ing it con­ser­va­tively. At the mid­point of its pric­ing range, Snap shares would cost close to what in­vestors paid a year ago in the com­pany’s most re­cent pri­vate fundrais­ing. That means those in­vestors may not re­al­ize a sig­nif­i­cant profit im­me­di­ately.

Snap is­sued those shares for nearly $31, but in Oc­to­ber it gave each of its share­hold­ers an ex­tra share for ev­ery one they owned, cut­ting the value of all in half.

As Snap be­gan IPO prepa­ra­tions last fall, peo­ple close to the Venice com­pany imag­ined a start­ing val­u­a­tion of at least $25 bil­lion and as high as $40 bil­lion. The val­u­a­tion yet may end up in that range in early March when a fi­nal price is set the day be­fore shares be­gin trad­ing on the New York Stock Ex­change un­der the ticker sym­bol SNAP.

But Snap faces a cau­tious in­vest­ment com­mu­nity that may have led to a tem­per­ing of ex­pec­ta­tions. In­vestors have been spooked by the strug­gles of so­cial me­dia ser­vice Twit­ter, an­a­lysts say, which could be sow­ing doubts about sup­port­ing un­prof­itable star­tups such as Snap, which has only a short his­tory of gen­er­at­ing rev­enue. Snap had sales of $405 mil­lion last year, mostly from ads shown on Snapchat. But the com­pany lost $515 mil­lion as it boosted spend­ing on all facets of its busi­ness.

In ad­di­tion, slow­ing user growth on the Snapchat mes­sag­ing app has raised con­cerns about whether it can sell enough ads to sus­tain a high val­u­a­tion. And the com­pany’s de­ci­sion to of­fer no vot­ing power with shares be­ing of­fered in the IPO — un­prece­dented for a U.S. of­fer­ing — has drawn crit­i­cism from both ex­ist­ing and prospec­tive share­hold­ers.

Spiegel and Mur­phy would ef­fec­tively have ul­ti­mate say on whether to ac­cept or de­cline an ac­qui­si­tion of­fer, who sits on the board of di­rec­tors and other cor­po­rate mat­ters.

Up to 7% of the shares be­ing of­fered in the IPO are be­ing re­served for friends of Snap ex­ec­u­tives, ac­cord­ing to se­cu­ri­ties fil­ings. The num­ber of IPOs an­nu­ally with such di­rected share pro­grams has fallen to about 1 in 3 in re­cent years, with com­pa­nies on av­er­age set­ting aside about 5%, ac­cord­ing to data from mar­ket in­tel­li­gence firm Ipreo. If the en­tire bas­ket is sold, Snap’s di­rected share pro­gram would be the largest in the U.S. since 2010.

Justin Lane Euro­pean Pressphoto Agency

VENICE so­cial me­dia firm Snap, which said it plans to price its shares be­tween $14 and $16, will list on the New York Stock Ex­change un­der the sym­bol SNAP.

Al Seib Los An­ge­les Times

SNAP’S Spec­ta­cles — a $130 pair of sun­glasses that dou­ble as a cam­corder — have got­ten pos­i­tive re­views.

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