The archive · Consumer Apps · Financial decision · 2017
Snap Inc. raises $3.4B in its IPO and opens 41% above the $17 offer price
Snap Inc. sold $3.4B of no-vote shares at $17, opened at $24, and bet investors would fund a loss-making camera company.
Snap Inc.
What the business is
Snap Inc. (formerly Snapchat, Inc.) makes Snapchat, a camera-first messaging app whose photos and videos disappear; it monetized 158 million daily users with Snap Ads, Sponsored Lenses and Geofilters, plus Spectacles camera sunglasses and the Bitmoji app.
Starting capital：IPO raised $3.4B at $17 per share on 2017-03-02, after a Feb 17 filing that had planned about $2.3B at $14-16 (Fortune); Spiegel and Murphy each sold 16M shares for about $272M (CNBC) while Fortune reported the founders kept control through super-voting shares.
How it started
By early 2017 Snapchat was about five years old (TechCrunch) and had become a generational habit: 158 million daily users at the end of 2016, up 48% from 103 million a year earlier, creating 2.5 billion Snaps a day, with 68 million US DAUs. Co-founders Evan Spiegel and Bobby Murphy ran the company, and its S-1 - quoted in full on the HN thread - described Snap Inc., formerly Snapchat, Inc., as a camera company whose app opens directly into the Camera, with Snap Ads, Sponsored Lenses and Geofilters as the ad products and Spectacles as hardware. The engagement thesis running through the thread: because a Snap disappears, the bar to create is as low as it gets, so users share constantly where permanent-feed apps get occasional posts.
What happened
The public-market test was framed by warnings. Fortune reported 2016 revenue of $404M against $676M of negative cash flow, a super-voting structure that let the co-founders control major decisions while owning roughly 19%, and looming dilution: 105M RSUs granted in 2016 plus about 80M from earlier years vest at the IPO - one in six shares, worth about $2.9B to 1,859 employees at $16 - with roughly 270M new shares due within three to four years. The deal grew from a Feb 17 filing of about 153M shares at $14-16 to a $17 price and $3.4B raised on March 2. On the thread, bulls called Snap a call option on AR, citing geofilters, sponsored lenses and scarce Spectacles (official $130 units reselling above $200 on eBay); bears cited about a $500M net loss, thin ad-targeting data and the Instagram Stories and WhatsApp Stories clones, and noted the public shares carried no votes and no dividend.
How it ended up
Shares opened at $24, about 41% above the $17 offer, and CNBC's same-day tally quoted them near $25 - an intraday market cap around $30B, with thread commenters citing $27.8B from the deal prospectus. Spiegel and Murphy each sold 16M shares for about $272M while keeping their controlling stakes; the thread's named next tests were the first earnings report on May 15 and the first lockup expiry on July 30, when employees could sell.
Background
Snap Inc. - Snapchat, Inc. before the rename - made Snapchat, the camera-first disappearing-message app founded by Evan Spiegel and Bobby Murphy. By end-2016 it had 158 million daily users (up 48% from 103 million) creating 2.5 billion Snaps a day. Its S-1, quoted on the HN thread, described it as a camera company whose app opens directly into the Camera, monetized by Snap Ads, Sponsored Lenses and Geofilters, with Spectacles as hardware. The thread's thesis: because a Snap disappears, the bar to create is as low as it gets, so users share constantly where permanent feeds get occasional posts.
The financial backdrop was brutal for a roughly $28B ask: Fortune reported $404M of 2016 revenue against $676M of negative cash flow, about a $500M net loss, and super-voting shares that let the co-founders control major decisions with about 19% ownership. It also flagged dilution - 105M RSUs from 2016 plus about 80M earlier ones vest at the IPO, one in six shares worth about $2.9B to 1,859 employees at $16, with 270M new shares due within four years. The offering grew from a Feb 17 plan of about 153M shares at $14-16 to $3.4B at $17 on March 2; each founder sold 16M shares for about $272M.
Shares opened at $24, about 41% above the offer, quoted near $25 in CNBC's same-day tally - an intraday market cap around $30B. The HN thread split along the bet: bulls called Snap a call option on AR, citing geofilters, lenses and scarce Spectacles ($130 units reselling above $200 on eBay); bears saw a loss-maker with thin ad targeting squeezed by Instagram Stories and WhatsApp Stories clones, holding public shares with no votes and no dividend. The named tests were May 15's first earnings report and July 30's first lockup expiry.
What has to be true
- Ephemerality lowered the bar to create: commenters noted users post to Snapchat several times a day where permanent-feed apps get weekly posts, which is the habit the valuation rested on.
- Snap renamed itself a camera company in the S-1 and monetized inside the camera - Snap Ads, sponsored Lenses, Geofilters and Spectacles - instead of importing Facebook's feed-and-graph model.
- Founders kept super-voting control while the public got no votes and no dividends, so the $3.4B raise priced trust in Spiegel and Murphy, not shareholder power.
- The skeptics' numbers were concrete - about a $500M net loss, $676M of negative cash flow and one-in-six dilution at the IPO - so the pop was a bet that growth and AR would arrive before GAAP did.
What can be applied
Snap sold $3.4B of no-vote, no-dividend shares and accepted a 41% pop rather than dilute founders' control - investors were funding growth and AR optionality years before GAAP profits.
Aftermath
As of 2017-03-02, Snap had completed the IPO: $3.4B raised at $17, shares opened at $24 and were quoted near $25 in CNBC's first-day tally, an intraday market cap around $30B. Spiegel and Murphy each sold 16 million shares for about $272 million and retained their controlling stakes. The next checkpoints named in the HN thread were the first earnings report on May 15, 2017 and the first lockup expiry on July 30, 2017, when employees could sell; Fortune projected the IPO-vesting RSU dilution would hit over the following three to four years.
Sources
- Here's how much Snap's founders made from its IPO
- How Snap's big stock gifts to insiders could sting future investors
- Snapchat international user growth slowed in the second half of 2016
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