Snap sets price range for initial public offering
The Snapchat maker values itself at up to $22 billion ahead of highly awaited IPO.
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.
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.
SNAP’S Spectacles — a $130 pair of sunglasses that double as a camcorder — have gotten positive reviews.