Where the Snap IPO Can Go From Here

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Snap is closing in on its initial public offering (IPO), and although the expected price range has been released, rumors are swirling about where the price will land. Also the schedule appears to be that Snap will make all this known and come public in the next couple days. But keep in mind that this IPO is different from any one we have seen before.

The company expects to price its 200 million shares (155 million from the company and 55 million from selling stockholders) in the range of $14 to $16, with an overallotment option for an additional 30 million shares. At the maximum price, the entire offering is valued up to $3.68 billion.

The rumors surrounding the pricing of this offering are such that shares are expected to price at the high end of the range. Some are even calling for the pricing to be in the range of $17 to $18 per share.

What makes Snap’s offering truly unique is that the Class A shares being sold in this offering have no voting power, a move by management that has never been seen before in any other offering.

Apart from the nonexistent voting rights, a 50 million share portion of the offering will be subject to a one-year lockup agreement. The idea behind this is to reduce the number of shares sold short term and alleviate the first day selling pressure.

The underwriters for the offering are Morgan Stanley, Goldman Sachs, JPMorgan, Deutsche Bank, Barclays, Credit Suisse and Allen. The company intends to list its shares on the New York Stock Exchange under the symbol SNAP.

This company’s flagship product, Snapchat, is a camera application that was created to help people communicate through short videos and images. The company calls each of those short videos or images a Snap. On average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day.

On average, more than 60% of daily active users (DAUs) use the chat service every day to send Snaps and talk with friends. Snap benefits from the frequency with which its user base communicates with one another because each message invites a user back to the application when they receive a push notification. On average, DAUs visit Snapchat more than 18 times each day.

Snap detailed its finances in its most recent filing:

Worldwide advertising spend is expected to grow from $652 billion in 2016 to $767 billion in 2020. The fastest growing segment is mobile advertising, which is expected to grow nearly 3x from $66 billion in 2016 to $196 billion in 2020. We believe that one of the major factors driving this growth is the shift of people’s attention from their televisions to their mobile phones. This trend is particularly pronounced among the younger demographic, where our Daily Active Users tend to be concentrated. According to Nielsen, people between the ages of 18 and 24 spent 35% less time watching traditional (live and time-shifted) television in an average month during the second quarter of 2016 compared to the second quarter of 2010.

The company intends to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. The firm may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, it does not have agreements or commitments for any material acquisitions at this time.