Business

Snapchat parent soars on IPO, up 48% in early trade

Published: 4:00 AM, March 3, 2017

NEW YORK — Shares in Snap, the maker of the disappearing-message service, Snapchat, that relies on the fickle favour of millennials, surged yesterday (early today, Singapore time) on its debut on the New York Stock Exchange (NYSE) in one of the most eagerly-awaited initial public offerings (IPO) in recent memory.

Trading under the NYSE ticker symbol SNAP, the shares opened at US$24 at 11.20am, before shooting to a high of US$25.20, up 48.2 per cent from its US$17 IPO price.

At 11.45am, Snap was trading at US$24.91, with 88.8 million shares having changed hands, exchange data showed.

Snap co-founder and chief executive Evan Spiegel showed up with his supermodel fiancee Miranda Kerr to ring the NYSE opening bell, CNBC reported, and then left the exchange building to await the first Snap trade at the offices of Goldman Sachs, which together with Morgan Stanley led the IPO.

The IPO has tested investor appetite for a social media app that is loved by teenagers and people under 30 for applying bunny faces and vomiting rainbows onto selfies, but has yet to convert “cool” into cash.

Snap had raised US$3.4 billion (S$4.8 billion) on Wednesday after selling 200 million IPO shares at US$17 each — a dollar more than the top end of the expected range, after orders swelled to more than 10 times the number of shares up for sale.

That gave it a valuation of nearly US$24 billion, more than twice the size of rival Twitter and making it the richest valuation in a US tech IPO since Facebook five years ago.

It is a “nosebleed” valuation, but “there is a nosebleed’s worth of demand”, said Mr David Kirkpatrick, chief executive of Techonomy Media.

“There is a huge amount of people who really just want to get in on the hot new thing, who see this as the first opportunity of its type in a number of years,” he added.

Investors, attracted by Snapchat’s hold on its millennial users — who check the app more than 18 times a day on average — bought into Snap’s offering even as warning signs flashed over the company.

It lost more than US$500 million last year, and its explosive user growth appears to have hit a speed bump.

And in a decision that has angered some large investors, the shares will have no voting rights, leaving control in the hands of the company’s founders, who can retain that power for years — even after leaving Snap.

The question beyond this week is whether Snap will prove to be like the mighty Facebook, whose shares are up more than 250 per cent since its IPO in 2012, or the embattled Twitter, whose shares have fallen about 60 per cent since making their debut in 2013.

Much has been riding on Snap’s offering, including expectations that it will lift a moribund market in new stocks. In going public, Snap has leapt ahead of other tech darlings such as Uber and Airbnb.

Throughout the presentations to investors, Snap executives touted Snapchat as a new way of consuming content, largely produced by its users — laid alongside a fast-growing advertising business.

At the end of last year, Snap reported an average of 158 million active daily Snapchat users. Revenue totalled about US$404 million for the year, up from zero in sales three years ago. The company believes sales could reach US$1 billion this year.

Those sales have come primarily from advertisers who covet both millennial users and a service that has figured out creative ways to reach them.

Big-name brands, from Gatorade to Tiffany, have run campaigns on the social network, and the advertising titan WPP said at an industry conference on Wednesday that it spent US$90 million on Snapchat ads last year.

Snap has come a long way from its beginnings in a Stanford dorm room as a service used largely by young people enamoured with sending their friends pictures and videos that self-destructed after seconds.

Based in the fashionable Los Angeles neighbourhood of Venice, the company has since introduced ways for users to broadcast “stories” about their days to wider audiences and pioneered the use of computer-generated lenses that transform those users into dogs or Taco Bell tacos.

Now, Snap is trying to convey even greater ambitions. In the prospectus for its stock sale, the service declared itself a “camera company”.

So far that has included selling Spectacles, camera-equipped sunglasses that let users upload 10-second videos directly to Snapchat, which briefly captured the fancy of the tech cognoscenti.

Snap has also worked on prototypes for products such as drone-mounted cameras. And Snap, under Mr Spiegel, 26, said it will continue to roll out innovations.

Regardless of whether Snap stock soars or sinks, its IPO will significantly enrich its earliest investors, notably Mr Spiegel and the company’s other founder Bobby Murphy, 28.

With 227 million shares each, the two men are each worth more than US$5.6 billion on paper at the last done price, well ahead of their 30th birthdays. AGENCIES