Investors quiz Snap executives at New York roadshow

Evan Spiegel and other top executives at Snap, the owner of messaging app Snapchat, on Tuesday pitched the company to hundreds of investors in New York and faced questions about user growth, costs and the development of the platform.

The ballroom at the Mandarin Oriental in midtown Manhattan was the second stop on a roadshow for the company’s listing, after it kicked off its marketing blitz in London on Monday.

Snap last week put its proposed market capitalisation in a range of $16.2bn to $18.5bn, excluding shares issued to employees. People familiar with the deal had previously indicated that the group was aiming for a valuation of as much as $25bn.

The initial public offering is still expected to be one of the largest tech listings in years and is eagerly awaited as a barometer of investor appetite for “unicorns” — tech companies that have achieved valuations of $1bn or more before tapping public markets. Tech IPOs have been scant in recent years as companies have been able to raise large sums and achieve lofty valuations privately.

The New York roadshow, which lasted about an hour, included a pre-recorded presentation with chief executive Mr Spiegel and other officials describing the company, but was primarily a question-and-answer session with him and chief strategy officer Imran Khan, a former banker at Credit Suisse who worked on deals including Alibaba’s $25bn listing.

“I have never been to a roadshow where there is no presentation and just a Q&A. They almost expected you to have watched the roadshow prior to going to the roadshow,” said Sean Stiefel, portfolio manager at Navy Capital. “If you assume the average investor is not a Snapchat user, which is a fair assumption, you need to explain what the product is. I would guess that half the room didn’t have Snapchat on their phones.”

Mr Stiefel also said he was surprised there was no geofilter for the event, referring to the usually colourful images that people in a particular location can layer over their snaps.

Investors who attended the New York event described Mr Spiegel, 26, as professional and well rehearsed.

Company representatives faced no questions on one of the most controversial aspects of the IPO — shares sold in the transaction will have no voting rights, leaving all power over big decisions and appointments to co-founders Mr Spiegel and Bobby Murphy, chief technology officer. Some investors have said that this will keep them out of the deal.

Snap has faced other investor concerns including how it will compete with Facebook-owned Instagram and about the seriousness of a slowdown in user growth in the fourth quarter of 2016.

Snap, which lost $515m in 2016 as costs rose, attributed the slowing user growth to issues with the application on Android phones, but it came in the first full quarter after Instagram copied Snapchat’s “Stories” feature. Another Facebook-owned app, WhatsApp, announced on Monday that it too was launching a stories feature, while the main Facebook app is testing it in Ireland.

“The biggest elephant in the room is that they didn’t really address Instagram,” Mr Stiefel said. “People will continue to wonder how much share they are taking. It doesn’t have to be a zero-sum game given how large the market is, but they do need to address their competitive stance against Facebook.”

Still, Mr Stiefel said that at a valuation of $18bn-$20bn, Snap was interesting given the secular decline in other media.

“That is not to say it is the next Facebook. I don’t know where they will be in 20 years, but it is worth buying [at this valuation] and seeing if the management can execute,” he said.

Lawrence Haverty, associate portfolio manager at Gabelli Funds, was struck by how many people attended the New York roadshow.

“It was standing room only with people doing everything but hanging out the windows,” he said.

The biggest elephant in the room is that they didn’t really address Instagram. People will continue to wonder how much share they are taking

Mr Haverty declined to comment on whether he would buy shares in the IPO, but was concerned about valuation given the company’s losses and the size of Snap’s business opportunity.

“Somewhere here there is a wall that is closer than the optimists think,” he said. “I don’t know if that wall is in the demographics or the ad dollars. Their principal competitors [for ad dollars] are Facebook and Google who are very good at what they are doing.”

The majority of Snap’s users are 18-34-year-olds. Snap argues in its roadshow video that this is a market that advertisers are keen to reach because users in this age group watch TV much less than others.

Fred Baccanello, an investment manager at Dominion Asset Management who attended the London roadshow, said it was a “strong presentation” but he was worried about growth and profitability.

“We did not get any indications or impressions of when the company will look to be profitable. What we were told was an investment plan,” he said.

The roadshow continues to Boston and San Francisco with shares expected to be priced on March 1.

Additional reporting by Hannah Kuchler in San Francisco