Snap Inc. raised $3.4 billion on Wednesday after pricing its initial public offering at $17 a share – a move that valued the company at a whopping $24 billion which is more than double the size of rival Twitter and the richest valuation in a US tech IPO since Facebook in 2012.
Snap could have very well priced its share at $19 but it didn’t go for it because the company wants to focus on securing funds from long-term investors rather than from those who are in it for a quick buy and sell affair. This particular sale, the first one, helped gauged the investor appetite for social-media app at a time when tech stocks haven’t been faring well.
Snap has managed to post nearly 7-fold increase in its revenue, but its net loss continues to decline owing to fierce competition from Facebook as well as decelerating user growth. Snap priced 200 million shares on Wednesday night at $17, above its stated range of $14 to $16 dollars a share. The sale had the advantage of favourable timing.
The year 2016 was not a good one for technology IPOs and has been the slowest for such launches since 2008. Launch of Snap IPO could prove to be an encouragement for other companies with private valuations of $1 billion or more.
Investors bought the shares despite them having no voting power, an unprecedented feature for an IPO despite years of rising concerns about corporate governance from fund managers looking to gain influence over executives. Snap is set to begin trading on Thursday on the New York Stock Exchange under the symbol SNAP.
Snap is valuing itself at nearly 60 times revenue, more than double the 27 times revenue Facebook fetched when it went public in 2012. Snap has been emphasizing on this massive valuation on the basis of how important Snapchat is to its users, how long they spend on the app and the revenue potential of the emerging trend for young people to communicate with video rather than text.
The company has been vague on its plans to lead and monetize image-driven conversations, but has suggested investors put faith in the vision of its co-founder Evan Spiegel, whom it introduced in its investor roadshow as a “once-in-a-generation founder.”
The 26-year-old will walk away with a roughly 17 percent stake valued at $4.05 billion. Spiegel and co-founder Bobby Murphy will each be selling 16 million shares in the IPO that earned them $272 million apiece.