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EisnerAmper's CA CPA discusses Snapchat's IPO which competes with Facebook, Apple and Twitter and may nudge Pinterest, Uber, Airbnb and Spotify.

Snapchat Readies IPO

Snap Inc., parent company of social media giant Snapchat, has filed with the SEC to go public. The initial share price is expected to be between $14 and $16, which would raise more than $3 billion from the sale of 200 million Class A shares. The company is targeting a valuation in the neighborhood of $22 billion. It plans to list in March on the New York Stock Exchange under the ticker symbol SNAP.

Meet Snap Inc.

Headquartered in Venice, California, Snapchat began in 2011 as an app used for sending photos that would self-delete within a short period of time. Today, it bills itself as a camera company that has evolved into video editing and storytelling as well as the manufacturer of Spectacles video-recording glasses. Beloved by Millennials, snapchat averaged 158 million daily users in 2016, up 48% from 2015.

Highly Anticipated

This is the largest and most highly anticipated IPO since Alibaba’s IPO in 2014 and Facebook’s in 2012. Interestingly, Snapchat reportedly turned down Facebook’s acquisition offer of $3 billion in 2013.

IPO Market

Another reason the Snap IPO is seen as significant is its potential to kick-start what has been a sluggish IPO market. IPOs in 2016 (the worst year in some time for IPOs) were down 38% from 2015. Could a successful Snap IPO nudge other tech companies to go public such as Pinterest, Uber, Airbnb, or Spotify?

Concerns

The Snap IPO has given investors reason for pause, however. Because the company derives the vast majority of its revenue from advertising, it has to show growth potential in a market where it competes with heavyweights Facebook, Apple and Twitter. Further, while Snap’s revenue skyrocketed from $58.7 million in 2015 to $404.5 million in 2016, losses grew from $372.9 million to $514.6 during this same period.

On the Road

Snap's leaders Evan Spiegel and Bobby Murphy are currently on a global road show to convince investors that despite any evidence to the contrary, Snap is well-positioned for the future. The owners say they will use approximately $2 billion of the money raised during the IPO for working capital and operating expenses, as well as possible acquisitions. 

Amar Bhatkhandé is an Audit Partner and a leader in the Life Sciences and Technology Services Group for the firm's West Coast practice, with over 25 years of experience in public accounting and 2 years in private.

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