Snapchat owner's shares crackling with $4.8b IPO

Snap's shares shot higher amid strong demand after the company debuted on the New York Stock Exchange.
Snap's shares started trading in New York yesterday, with early indications pointing to its shares opening up at between US$22 and US$24.
Snap's shares started trading in New York yesterday, with early indications pointing to its shares opening up at between US$22 and US$24.PHOTO: AFP

NEW YORK • Snap's in-demand shares started trading in New York yesterday after the owner of the popular Snapchat messaging app raised US$3.4 billion (S$4.8 billion) in its initial public offering (IPO) on Wednesday, above its price expectations.

Early indications pointed to Snap shares opening up at between US$22 and US$24.

Snap co-founders rang the bell at the New York Stock Exchange (NYSE) yesterday, Financial Times reported. Mr Evan Spiegel, the 26-year-old chief executive, and Mr Bobby Murphy, chief technology officer, were dressed in smart suits and ties.

Snap's IPO was oversubscribed by more than 10 times, indicating a hunger for the shares that might produce a pop on the first day of trading.

Snap sold 200 million shares in its initial public offering at US$17 each, according to a statement on Wednesday. At that price, it has a market value of about US$20 billion, based on 1.16 billion shares outstanding after the IPO.

That implies a multiple of about 21.4 times EMarketer's estimate for Snap's 2017 advertising sales.

It's a "nosebleed" valuation, but "there's a nosebleed's worth of demand", said Mr David Kirkpatrick, chief executive officer of Techonomy Media.

Snap raised US$3.4 billion in its IPO, pricing shares above the marketed range, in the biggest social-media IPO since Twitter more than three years ago. It is also the first tech company to list in the United States this year.

The share sale was the first test of investor appetite for a social media app that is beloved by teenagers and people under 30 for applying bunny faces on to selfies, but has yet to convert "cool" into cash.

Despite a nearly seven-fold increase in revenue, the Los Angeles-based company's net loss widened 38 per cent last year. It faces intense competition from larger rivals such as Facebook's Instagram as it grapples with decelerating user growth.

The sale was well timed, as investors look for fresh opportunities after last year marked the slowest year for IPOs since 2008. The launch could encourage debuts by other so-called unicorns, tech start-ups with private valuations of US$1 billion or more.

Investors bought the shares despite them having no voting power, an unprecedented feature for an IPO at odds with rising concerns about corporate governance over the past few years from fund managers looking to gain influence over executives.

Although Snap is going public at a much earlier stage in its development than Twitter or Facebook, the five-year-old company is valuing itself at nearly 60 times revenue, more than double the 27 times revenue mark Facebook fetched in its IPO.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 03, 2017, with the headline 'Snapchat owner's shares crackling with $4.8b IPO'. Print Edition | Subscribe