The Snapchat IPO, Explained
Snap Inc.’s initial public offering—more commonly known as the Snapchat IPO—is expected to be a landmark moment of 2017. There were very few IPOs last year, and few are scheduled for this year, leaving many investors hungry for a piece of Snapchat stock.
It doesn’t hurt that Snapchat has become one of the most successful social media apps on the planet. Facebook Inc (NASDAQ:FB) has tried to buy the company in the past, but CEO and Founder Evan Spiegel turned down the offer.
He knew what he wanted, and what he wanted was a Snapchat IPO.
The paperwork was filed secretly in the autumn of 2016. Reports suggest that $20.0 to $25.0 billion worth of Snapchat stock will be issued in this particular offering. To put the scale in perspective, consider that Snap currently draws in less than $1.0 billion in revenue.
This week, Spiegel met with institutional investors to iron out the details of the Snapchat IPO. No doubt the goal is to have Snapchat stock oversubscribed before finalizing the deal, which shouldn’t be a problem considering the company’s spectacular momentum.
Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS) are leading the deal, with JPMorgan Chase & Co. (NYSE:JPM), Deutsche Bank AG (NYSE:DB), Allen & Co. LLP, Barclays Plc, and Credit Suisse Group AG, providing back-up. (Source: “Evan Spiegel is selling his vision to investors ahead of Snap’s huge IPO,” Business Insider, January 13, 2017.)
Okay, But Is Snapchat Stock a Buy?
Although we are bullish on Snapchat stock, it is generally advisable not to trade in the early hours of an initial public offering. Many institutional investors get early access to the shares only to dump them as retail investors jump in. That way they make a quick buck.
Moreover, the venture capital investors who gave Snapchat their startup funds may cash out after the IPO. They need that capital to fund other startups because, well, that’s how their business works.
This suggests that Snapchat stock could struggle in its early days, much like shares of Facebook did after its IPO.
That’s the short-term view. But over the medium- to long-term, we expect Snapchat stock to outperform by a wide margin. Make no mistake, the Snapchat IPO is the second coming of Facebook and of Mark Zuckerberg.
Or at least that’s the story being told to New York’s institutional investor class.
The comparison does hold up really well though. Both Zuckerberg and Spiegel founded billion-dollar social media companies in their 20s, and both turned down billion-dollar offers. Zuckerberg’s defining moment was when he turned down Yahoo! Inc.’s (NASDAQ:YHOO) $1.0-billion bid for Facebook.
It must be a bitter sort of poetic justice that Spiegel turned him down for three times that sum. (Source: “Snapchat CEO Reveals Why He Rejected Facebook’s $3 Billion Offer,” Mashable, January 6, 2014.)