{"id":4953,"date":"2017-02-08T12:29:29","date_gmt":"2017-02-08T16:29:29","guid":{"rendered":"http:\/\/ncjolt.org\/?p=4953"},"modified":"2020-06-04T20:52:57","modified_gmt":"2020-06-04T20:52:57","slug":"snapchat-goes-public","status":"publish","type":"post","link":"https:\/\/journals.law.unc.edu\/ncjolt\/blogs\/snapchat-goes-public\/","title":{"rendered":"Snapchat Goes Public: What the Average Trader Should Know about SNAP"},"content":{"rendered":"

On February 2, Snap, parent company of the popular social media app Snapchat, filed for its initial public offering (IPO<\/a>) on the New York Stock Exchange under the ticker symbol, SNAP. The company\u2019s decision to go public comes on the heels of a successful year that saw a 600% increase<\/a> in revenue from 2015.<\/p>\n

What is an IPO?<\/span><\/h5>\n

There are two basic types of corporations, public and private. Private companies<\/a> are not heavily regulated by administrative agencies, they generally are not required to disclose much information to the public, and they are not required to allow third parties to buy a share of the company. On the other hand, public companies<\/a> are closely scrutinized by the SEC, they must report financial information, and shares of the company in the form of stocks are traded and sold by the general public.
\nAn IPO is a company\u2019s first offering of stock to the general public. Companies decide to go public for several reasons<\/a> including: raising revenue, attracting employees with stock options, and the prestige of being publicly traded. In order to make an IPO, a private company must file a registration statement which includes a prospectus. The prospectus<\/a> records information like the company history, description of the proposed IPO, and a risk analysis for investors. Of particular importance<\/a> to investors are the valuation of the company and the classes of stock to be sold to the public. The classification of stocks<\/a> will dictate the availability of dividends and voting rights for stockholders which in turn affects cash flow and control of the company.<\/p>\n

What do investors need to know about Snap\u2019s IPO?<\/span><\/h5>\n

First, Snap valued the company at $20 to 25 billion<\/a> which could prove problematic given that Snap, like many other tech start-ups, has yet to turn a profit. The company anticipates raising $3 billion from the IPO which would be the largest<\/a> tech IPO since Alibaba raised $22 billion in 2014; however, the expected share price is unknown.
\nIn 2016, Snap experienced significant growth from the previous year. In 2015 the company yielded just $59 million in revenue while recording roughly $372 million in losses<\/a>. In 2016 Snap\u2019s revenue spiked to $404 million<\/a>, however, losses for the year totaled $514 million. With 158 million daily active users sending 2.5 billion \u201cSnapchats\u201d per day, as well as new investments from news outlets<\/a> buying advertisements and channels to broadcast their stories all day, the company has significant upside, if the price is right. Snap cites<\/a> its prominence among Millennials, along with future investments in hardware as further justification for the high valuation.<\/p>\n

Snapchat is a brilliant idea that had changed the way Millennials around the world communicate with one another. Snapchat has captured the hearts and minds of this demographic by being fundamentally different from Facebook and Twitter. Snap\u2019s unique hold on Millennials is partly responsible for its lofty valuation.
\n-Rohit Kulkani<\/p><\/blockquote>\n

 
\nThis IPO, however, is far from being a slam dunk for investors. Snap\u2019s biggest obstacles<\/a> include competition with rival social media network Facebook and a unique stock structure. Despite Snap\u2019s remarkable increase in revenue in 2016 which outpaced Facebook\u2019s growth of 54%, Facebook remains the leader in social media generating $27.6 billion<\/a> in revenue last year. In addition, Facebook recently added social networking features<\/a> to Instagram giving it the same capabilities as Snapchat. However, unlike Facebook, Snap does not pursue celebrity endorsements; instead Snap relies on user engagement<\/a> in the app with other users and paid advertisers. Still, Facebook\u2019s push to compete directly with Snap, combined with doubts about Millennials\u2019 brand loyalty<\/a>, add to the concerns about Snap\u2019s IPO.
\nFinally, Snap is using a multi-class stock arrangement to centralize control of the company. Company executives, principally 26-year-old CEO Evan Spiegel, will have almost exclusive control<\/a> over the company with 10 votes for each share<\/a> of Class C stock they own. Investors with a prior stake in the company will receive Class B stock carrying one vote per share<\/a>. Common stock, Class A, sold to the general public will have no voting rights<\/a>, meaning shareholders will have no input as to the company\u2019s decisions. The company also shows no intention of paying dividends<\/a>. While multi-class stock arrangements and centralizing most of the voting power in key executives are common, issuing only nonvoting shares to the public in an IPO is atypical<\/a>.
\nOnly time will tell whether Snap\u2019s bold strategy pays off and raises the expected $3 billion. Presumably, Snap\u2019s executives did their homework and probed potential investors prior to valuing the company at 62 times revenue and issuing only nonvoting shares to the public. Snap\u2019s grip on Millennials\u2019 is strong and has proven its value over the past year, but competition from Facebook along with lingering questions as to whether Snap can grow its sales to reach profitability make this a risky investment.<\/p>\n","protected":false},"excerpt":{"rendered":"

On February 2, Snap, parent company of the popular social media app Snapchat, filed for its initial public offering (IPO) on the New York Stock Exchange under the ticker symbol, SNAP. The company\u2019s decision to go public comes on the heels of a successful year that saw a 600% increase in revenue from 2015. What …<\/a><\/p>\n","protected":false},"author":1,"featured_media":4954,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[51],"tags":[],"_links":{"self":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/4953"}],"collection":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/comments?post=4953"}],"version-history":[{"count":1,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/4953\/revisions"}],"predecessor-version":[{"id":7119,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/4953\/revisions\/7119"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/media\/4954"}],"wp:attachment":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/media?parent=4953"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/categories?post=4953"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/tags?post=4953"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}