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Snap Inc., the parent of Snapchat, is working on an IPO that could value the virtual-messaging company at $25 billion or more. Photo: Snap
Snap Inc. is working on an initial public offering that could value the fast-growing virtual-messaging company at $25 billion or more, making it one of the highest-profile share debuts in years and possibly signaling a turnaround in the new-issue market.
The company, formerly known as Snapchat, is preparing the paperwork for an IPO with a view toward selling the shares as early as late March, according to several people familiar with the matter.
There is no guarantee the four-year-old Venice, Calif., company will proceed with a share sale in that time frame, and there is no guarantee it will achieve a valuation of $25 billion or more.
If Snap, best known for allowing users to send disappearing messages from their smartphones, moves forward as planned, it would be the biggest company to go public on a U.S. exchange since 2014. That is when Chinese e-commerce company Alibaba Group Holding Ltd. made its debut at a $168 billion valuation.
Snap would become the first of a small group of highly valued and closely watched venture-backed companies, led by Uber Technologies Inc., to test the public markets.
If Snap, best known for allowing users to send disappearing messages from their smartphones, moves forward as planned, it would be the biggest company to go public on a U.S. exchange since 2014. PHOTO: GETTY IMAGES
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- Snapchat Releases First Hardware Product, Spectacles (Sept. 24)
- Snapchat Pushes Further Into Digital Ad Targeting (Sept. 13)
- Snapchat Valuation Nears $18 Billion(May 26)
- Snapchat CEO: We Have a Plan for an IPO (May 26, 2015)
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A level of $25 billion or more would also represent a significant premium to Snap’s most recent valuation, which was pegged at $17.8 billion in its last private funding round in May. That would bode well for a new-issue market that until recently suffered from reluctance on the part of public investors to match the private valuations of many Silicon Valley startups.
Underpinning Snap’s valuation is the company’s dramatic revenue growth since it first started running advertisements in 2014.
The company told investors earlier this year that it expected revenue of between $250 million and $350 million in 2016 and as much as $1 billion in 2017. It is already ahead of the top end of its 2016 forecast, according to two people familiar with the matter.
In 2015, the company generated just $60 million in revenue. Snapchat loses money, according to people familiar with the matter, as it focuses on revenue growth and finding ways to make money off its big user base.
Snap primarily makes its money by selling advertisements on Snapchat that are slotted in between stories contributed by media partners and video diaries posted by its 150 million daily active users. Marketers can also purchase location-based or event-based geofilters and “lenses” that add quirky characteristics to photos and video. Snapchat is dominant in the 18 to 24-year-old demographic, but it is now broadening its reach.
Snap’s debut would be a boon to an IPO market that has suffered from a drought of new technology offerings.
Only 19 tech companies have gone public this year on U.S. exchanges, raising just $3.3 billion as of Wednesday’s close, for a 35% drop compared with this time last year, according to Dealogic. The overall IPO sector has been weak largely because of the dearth of tech offerings.
Yet a spate of IPOs in September, mostly among smaller technology companies, indicates the trend may be reversing. Firms that priced below their most recent private funding round have quickly soared above it. U.S.-listed tech companies that debuted this year are now up 65% on average as of Wednesday’s close, according to Dealogic.
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Snapchat’s users base has grown to 100 million monthly users. But the company raised $175 million in its latest round of funding at a flat valuation of $16 billion. Photo: Getty (Originally published March 4, 2016)
Nutanix Inc., a software company that had been valued at $2 billion privately, priced its IPO at a valuation of $2.2 billion last week. After more than doubling its IPO price in several days of trading, Nutanix’s valuation is now nearly $5 billion.
A valuation of $25 billion or more would also validate Snap Chief Executive and co-founder Evan Spiegel’s decision in 2013 to spurn a $3 billion cash takeover offer from Facebook Inc.
While executives at some of the largest private companies, including Uber, have said they plan to stay out of the public markets as long as possible, Mr. Spiegel last year said at a conference that the company had a plan for an IPOand wouldn’t field acquisition offers. He hasn’t laid out a time frame.
Snap could use some of the proceeds from an IPO as currency for acquisitions in so-called augmented-reality or virtual-reality, one of the people said. Snap recently changed its name from Snapchat as it moves to develop beyond the main app for which it is known. As part of that transformation, Snap recently said it would release its first hardware product, sunglasses known as Spectacles that are equipped with a wireless video camera.
Snap CEO Evan Spiegel and his fiancée, Miranda Kerr, arrive for a state dinner for Nordic leaders at the White House in Washington earlier this year. PHOTO: ASSOCIATED PRESS
Snap’s chief strategy officer, Imran Khan, is part of the team that is working on the filing, the people familiar said. Mr. Khan joined fromCredit Suisse Group AG in 2015, where he was head of global internet investment banking and served as a key adviser on the Alibaba IPO, at $25 billion the largest share sale in history.
Snap has raised roughly $2.4 billion in the private markets from a wide range of investors including Benchmark, Lightspeed Venture Partners and Fidelity Investments.
