Snap could snap tech IPO market out of doldrums
Don’t look now, SAN FRANCIS CO but the tech IPO market may be about to Snap out of its year-long torpor.
The blockbuster initial public offering is expected to kick off a revitalized market this year, encouraging IPO debuts by other unicorns, the privately held startups whose hefty venture capital funds have allowed them to avoid Wall Street and the legal requirements of a public offering.
Snap, the Venice, Calif.-based parent of the youth-oriented Snapchat messaging app, plans to offer 200 million shares at $14 to $16 apiece, giving it a value of $19.5 billion to $22.2 billion, according to a filing Thursday.
The sale, which aims to raise about $3 billion, is in the running to be the third-largest tech IPO in the last decade, dwarfed only by Alibaba Group Holding Ltd. ($25 billion share sale, for a valuation of $169.4 billion) and Facebook ($16 billion share sale for a value of $81.2 billion), according to market researcher Dealogic.
“Snap will be a jolt to the tech IPO market,” says Angelo Zino, an analyst at CFRA Research.
Macroeconomic and geopolitical turmoil that roiled markets last year are expected to yield to an exuberant market trading at record highs and a stream of high-profile companies in the IPO pipeline in 2017. Among the possible candidates: Hootsuite, Dropbox and Spotify. The companies declined comment.
The applications-management company AppDynamics was acquired by Cisco Systems for $3.7 billion days before its scheduled IPO in late January.
Snap or no Snap, the tech IPO market is poised for a comeback in 2017 after a desultory 2016 — the worst worldwide this decade. Last year, only 53 tech companies raised $8.7 billion in initial public offerings, down 42% and 68%, re- spectively, from 2015, according to PricewaterhouseCoopers.
“The big question is: Will Snap have Facebook-like growth trajectory after its IPO or Twitterlike growth?” says Minal Hasan, general partner and founder of K2 Global, a venture-capital firm in Silicon Valley.
Facebook raised the competitive ante last month, with the introduction of a Snap-like service called Instagram Stories, she says.
And there are nagging financial doubts about Snap for potential investors, based on information from its S-1 filing to go public.
Snap generated $404.5 million in revenue last year, compared with $58.7 million in 2015. It is on pace to clear $1 billion in 2017. But it lost $514.6 million last year and $372.9 million in 2015. And its count of daily active users, at 158 million, is relatively flat from the previous two quarters. “Snap is a unicorn IPO and a unicorn company,” says Chamath Palihapitiya, founder and CEO of Social Capital, a Silicon Valley venture capital firm that backs companies in areas such as healthcare and education. “It’s ramping engagement but not necessarily ramping a foreseeable growth pattern on top of a vanilla IPO.”
Despite its potential downsides, Snap will shine a bright light on tech IPOs, especially prospects for unicorns, says Kevin Spain, general partner at Emergence Capital. “Public markets have a real appetite, especially enterprise companies” such as Hootsuite and Dropbox, he says. “Hopefully, this is a harbinger of good things to come.”