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Snapchat IPO: $24bn app jumps as much as 40pc in blockbuster tech float - and makes 26-year-old founder Evan Spiegel worth $5bn
Snapchat's parent company was valued at more than $30bn (£24bn) on Thursday as investors brushed off fears about heavy losses to send shares soaring in the biggest technology float for years.
The 41pc share price leap as Snap debuted on the New York Stock Exchange in the biggest listing for a tech company in three years. It makes the messaging app’s 26-year-old founder Evan Spiegel, who founded Snapchat six years ago, worth more than $5bn.
Wall Street and Silicon Valley have waited for the initial public offering with baited breath as a barometer of the appetite for technology flotations, with a wave of start-ups worth billions of dollars primed to tap the public markets.
However, Snap’s heavy losses and slowing user growth have drawn unflattering comparisons to Twitter, which has endured a tumultuous few years as a public company, and the sale of shares without voting rights has created corporate governance concerns.
Snapchat’s has 161m daily users, much less than Instagram and Facebook, and its user growth has slowed in recent months. It lost $515m last year despite soaring revenues, and has warned it will continue to be in the red in the near future.
The concerns barely seemed to register on Thursday as Snap, which had raised $3.4bn at $17 a share, opened trading at $24. That gives it a $28bn valuation, but with the stock-based compensation for employees due over the coming months, the company has an implied value of some $34bn.
Mr Spiegel and his co-founder Bobby Murphy rang the opening bell at the NYSE, with the stock exchange decked out in Snapchat livery and Mr Spiegel’s fiancée, the model Miranda Kerr, in attendance.
Snapchat was founded in 2011 as a way to send disappearing photos over smartphones, an ephemeral alternative to the permanent digital baggage that exists on rival social services like Facebook and Twitter.
It has since expanded into a media outlet for news organisations, adding multiple features to the app, and exploring other areas. Last year it branched out into hardware, releasing a pair of camera-equipped sunglasses known as Spectacles. It recently opened an international office in London, where it will register its non-US advertising sales.
Among its 161m daily users it counts a roster of celebrities including the reality TV star Kim Kardashian and popstar Justin Bieber and a dedicated base, with the average user spending between 25 and 30 minutes a day on the app.
Revenue leapt last year to $405m, but so did losses, which widened to $515m. More concerning to potential investors has been signs of slowing user growth, drawing comparisons with Twitter, which has slumped in value since its own IPO.
Snapchat is being aggressively targeted by Facebook, which has successfully brought many of the app’s features into its own services, Facebook, Instagram and WhatsApp. Analysts see confidence in Snap as faith in Mr Spiegel’s ability to ride out the challenge from Facebook.
“High valuation metrics in of themselves does not necessarily make a poor investment,” said Neil Campling, global head of TMT Research at Northern Trust Capital Markets. But by far the most critical characteristic for high multiple, high growth companies in our view is the sustainability of competitive advantage. And this is where we have long term concerns for Snapchat because of the aggression of Facebook.”
Investors have also criticised Snap’s sale because of its split stock structure. The shares being sold have no voting power, and Mr Spiegel and Mr Murphy will have ultimate control of the company.
US markets have been starved of high profile technology flotations in recent years, and a string of start-ups are believed to have been watching Snap’s closely. The likes of Uber, Airbnb and Dropbox, all of which have been privately valued at more than $10bn, are seen as potential IPO candidates in the coming months.
Protesters are out again
"This one single company has basically taken over our residential community like a military occupation," a protester in Venice Beach tells Reuters.
"They are using residential units for their private offices, they are taking away public parking, residential parking for their employees, they are increasing congestion here with all the shuttles they use for their employees to go from one property to the next...
"People don't come to Venice Beach to see a bunch of private offices. They come here to see what they have never seen before: the artists, the street performers... at this rate there is not going to be that any more."
More analysis
This is from Jasper Lawler, a senior market analyst at LCG:
Even if it’s not worth the price tag, Snap is in high demand on its first day of trading anyway because investors have been so starved of high-growth potential IPOs. ‘Unicorns’ (tech start-ups valued over $1bn) like Uber and Airbnb have opted to stay private, limiting the supply of publicly investable firms. The desire to invest in the ‘next Google’ captures the imagination of every IPO investor.
'A furious start'
Here's what analyst Neil Wilson, from ETX Capital, makes of the day's events so far:
“It was a furious start for Snap shares as the biggest IPO in years lived up to all the hype.
"Trading close to $25 the stock is valued at more than 80 times sales – an incredibly high valuation. It’s valued at around $34bn now, nearly three times the market cap of Twitter and not far off eBay’s valuation. It’s got a bigger market cap than a lot of major companies that deliver far higher, sustained profits than Snap has ever managed (it’s still loss making).
"Longer term there are serious doubts about the longevity of the platform. This company either has to significantly boost users soon or diversify to sustain this kind of valuation.
"Close to $1bn in losses in the last two years make its valuation look ultra-steep. But it’s the drop-off in user growth that’s most concerning. Snapchat added 15 million users in each of the first three quarters of 2016, but this caved to just 5 million in the last quarter – the weakest increase since Q3 2014.”
'More than double the size of Twitter'
More from Reuters:
Snap's market cap of roughly $24bn is more than double the size of rival Twitter and richest valuation in a U.S. tech IPO since Facebook in 2012
Facebook shares fell flat in 2012 debut due to technical glitch while Twitter's shares jumped 73 pct
Who would want to work for Snap, anyway?
Here's the company's old office on Venice Beach, California:
And here's the new office, also in Venice:
And here's what you get when you leave work for the night:
Who is Evan Spiegel?
"Search the internet for any profile of Evan Spiegel, and you will come up short. At 26 - an age that makes him the first self-made billionaire born in the 1990s - the founder of Snapchat is supposed to represent a generation that grew up with the internet and is supremely comfortable about sharing their lives online.
"But Spiegel has eschewed the public profile of many of his peers. His Twitter account, set up in 2010, is empty, he has no open Facebook page, and interviews are exceedingly infrequent.
"He even keeps a low profile on Snapchat itself, despite it being a microphone for more than 150 million daily users including many of the world’s most glamorous celebrities, among them Spiegel’s fiancée, the supermodel Miranda Kerr."
Read more here.
How much money are the founders making?
One of the mind-boggling things about Snap is how young its two founders, Evan Spiegel and Bobby Murphy are. Spiegel is 26 and Murphy is 28.
Both are selling more than $250m worth of shares in the IPO, but will keep hold of 211 million. At $24 a share, that puts both of their net worths above $5bn.
'Evil Spiegel!'
As ever, there is a darker side to the tale. Protesters in Venice Beach, California, have spent the last few days trying to encourage people to steer clear of Snap's IPO.
Wielding signs like 'Evil Spiegel' and 'Snapchat Must Go', the protesters have been arguing that the company has wreaked havoc on the community, where it has its headquarters, saying that residents have been evicted because Snap has snapped up local apartment and office buildings.
Kerr in the house
Here's Miranda Kerr, Spiegel's fiancee, at the NYSE.
Last month, she accused Facebook of “stealing” her partner’s ideas and questioned how the company “sleeps at night”.
The Australian supermodel said she was “appalled” by the way Facebook, which owns picture sharing site Instagram, copies Snapchat’s features.
What is the difference Snap and Snapchat?
It is known by most as Snapchat, but the company rebranded itself in September by ditching the 'chat' and taking the name Snap Inc.
The move was made because the company was expanding beyond being just a messaging app. Indeed, it was announced at the same time as it revealed it would be selling sunglasses fitted with a built-in camera.
Writing in a blog post, CEO Evan Spiegel said:
“When we were just getting started it made sense to name our company Snapchat Inc., because Snapchat was our only product.
“Now that we are developing other products, like Spectacles, we need a name that goes beyond just one product—but doesn’t lose the familiarity and fun of our team and brand.”
Nearly half of Americans think Snapchat is 'just a fad'
That's according to a recent Fluent survey, which also found that more than 60pc of Snapchat users believe a better app will come out that they will use instead of Snapchat.
On a more positive note, most of those who do use Snapchat (66pc) believe they will still be using the app five years from now, the survey found, with more than half (52pc) saying they think they will be using it in 2027.
How real is the Facebook threat?
One of the big fears about Snapchat is that Facebook (and its other products, Instagram and WhatsApp), have been so aggressively competitive that it will struggle to survive. Here's Neil Campling, Northern Trust Capital Markets
High valuation metrics in of themselves does not necessarily make a poor investment as the success of Facebook and Tencent has proven in recent years for example. But by far the most critical characteristic for high multiple, high growth companies in our view is the sustainability of competitive advantage, the classic Warren Buffet economic moat. And this is where we have long term concerns for Snapchat because of the aggression of Facebook. Snapchat does not yet have scale and there are significant risks around opportunity to achieve the same given the firm’s economic moat being attacked aggressively by Facebook.
Instagram launched its Stories product - a rip-off of Snapchat but a successful one - last year.
So does it make any money?
Snap has a big price tag, but any investors will be betting that it will be able to turn its users into profits. So far the company has not been able to do so: it lost $515m last year, and those losses are increasing despite the company making more advertising revenue.
But it still appears to be seeing plenty of demand. According to the folks at Enders Analysis, investors are worried about missing out on stocks that might become massive.
Although we think the challenges facing Snap are large, current signs point to high demand for Snap stock, with some investors clearly suffering from a severe fear of missing out on the next hot tech stock