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TECH investors are preparing to snap up shares in one of the most popular social media brands in a move that has got stock exchange analysts buzzing in anticipation.
Snapchatowner Snap Inc has shot the opening salvo in its $3 billion initial public offering, outlining aggressive expansion plans but offering new investors no say on how the company is run and no promise of profits.
Snap’spublication of its IPO registration document last week sets the stage for its upcoming marketing campaign to convince investors to look past its widening losses and the firm grip of its founders, and focus on its rapid growth of active users.
The number of Snap’s daily active users grew to an average of 158 million at the end of December, up 48 per cent year-on-year, Snap revealed. However, its net loss widened to $514.6 million in 2016 from $372.9 million the year before.
While Snap will have time to polish its marketing pitch in the run-up to the IPO planned for next month, some analysts were taken a back that the company was just beginning to reap cash from its product.
“What surprises me the most is that it is still very early days when it comes to Snap making money,” said Rohit Kulkarni, managing director at private securities investment firm Shares Post.
Snap said inthe IPO registration document published last Thursday it would become the first US company to go public with shares on offer not granting voting rights to stock market investors. Its founders, Evan Spiegel and Robert Murphy, will keep control of the company.
Snap could be valued at between $20 billion to $25 billion, according to sources. That would give the company the richest valuation in a US technology IPO since Facebook.
Snap, which launched itself in 2012 with an app that sends disappearing messages, rebranded itself last year as a camera company and started selling $130 video camera glasses.
It generates the majority of its revenue from advertising, seeking to challenge the dominance of internet giants such as Facebook and Alphabet’s Google.
In its IPO registration document, Snap cited Apple, Google, Twitter, Facebook and its photo-sharing platform Instagram as its competitors.
Spiegel, the 26-year-old Snap co-founder, last year earned $503,205 in salary, with a $1million bonus. Spiegel and Murphy will maintain tight control over Snap’s stock through a unique three-share class structure. The structure will give Spiegeland Murphy the right of 10 votes for every share. Existing investors will have one vote for each of their shares, while new investors will have no voting rights.
Keeping tight control is common in companies closely associated with their founders,who often prefer to grow their business without being questioned by a broadarray of investors. Still, offering a class of stock with no votes in an IPO is unprecedented.
Though the structure has drawn some criticism for not giving stock market investors the opportunity to have input, some people close to the company have argued that investors can ‘vote with their feet’ by not buying into the IPO if they are not comfortable with the arrangements.
Snap’s biggest losses stem from ‘hosting fees’ which it pays to cloud computing companies such as Google to use their infrastructure for its data. It will pay Google $2 billion over the next five years to use them.
BecauseSnapchat users rely heavily on data-heavy pictures and video, the cost of theservice is high. Still, the proportion of the company’s costs to its revenuehas been declining. Its strategy has been to bargain for better hosting ratesas its growing number of users buoys its negotiating leverage.
Snap said itwould use the proceeds from its IPO for general purposes, including workingcapital, operating expenses and capital expenditures.
Snap said itwill list on the New York Stock Exchange under the ticker SNAP. Morgan Stanley,Goldman Sachs Group Inc, JPMorgan Chase & Co and Deutsche Bank AG areleading the offering as underwriters.
