Snap is trying to raise $3bn in an initial public offering that could be the largest US tech IPO in years, according to documents that provide the first glimpse inside the owner of the messaging app Snapchat.
Evan Spiegel, 26-year-old co-founder and chief executive, will own a stake worth up to $5.5bn, if the company succeeds in its aim of going public with a valuation of up to $25bn, with an additional $750m bonus for a successful IPO. Bobby Murphy, 28-year-old fellow founder and chief technology officer, has the same stake.
The co-founders will maintain control of the company, in what Snap believes will be the first IPO to issue shares with no votes. They alone will make the big decisions about the appointment of directors and mergers and acquisitions and maintain control even if their employment is terminated.
In the documents published on Thursday, Snap defined itself as a camera company, declaring it believes that “reinventing the camera represents our greatest opportunity to improve the way people live and communicate”.
“Our advertising business is still young but growing rapidly,” Snap said, with revenue increasing almost sevenfold in the fourth quarter of last year to $404.5m.
Snap’s global average revenue per user in the quarter was $1.05, up from $0.31 a year earlier. In North America, that metric hit $2.15.
That compared with Facebook’s average revenue per user of $19.81 in the fourth quarter in the US and Canada, its most profitable markets, while the social network’s global average is $4.83.
Snap made a net loss of $515m in 2016, wider than its $373m loss the year before.
Snapchat’s user growth slowed in the fourth quarter, growing 3 per cent to 158m daily active users from the quarter before. But the company said this was in part due to technical issues.
Its userbase is far smaller than rival Facebook, with 1.2bn daily active users and Instagram, with 600m monthly active users and 150m daily actives on Instagram Stories, a feature it copied from Snapchat.
Snap filed its S-1 with the US Securities and Exchange Commission in November, but was able to keep it confidential under the Jobs Act because it has less than $1bn in revenues. The offering will be led by Morgan Stanley and Goldman Sachs on NYSE and have three classes of shares. It plans to use the funds for “general business purposes” including mergers and acquisitions.
If it raises $3bn, it could be the third-largest US technology offering, after Chinese ecommerce group Alibaba, which raised $22bn, and Facebook, which raised $16bn. The earliest the stock could begin trading is in 15 days time.
Investors have been hoping a successful Snap IPO could lure more private tech companies, with valuations in the mulit-billions, on to the public markets. So far the so-called unicorns such as Uber and Airbnb have shied away from opening their books and taking public market money.
Among the risk factors Snap highlighted, it warned that it could not predict what impact issuing shares with no votes may have on its stock price or business. It also raised the issue of Instagram’s new Snapchat competitor: “Instagram, a subsidiary of Facebook, recently introduced a ‘stories’ feature that largely mimics our Stories feature and may be directly competitive”. It also warned its UK operations could be hit by Brexit
Snapchat was founded in 2011 to try to reinvent the social network as a place for close friends to send casual, conversational pictures that disappeared, rather than a home of hundreds of acquaintances producing permanent profiles.
The app has expanded beyond the 10 second one-to-one snaps, to 24 hour collections known as stories and a platform for publishers from CNN to Cosmpolitan, called Discover. More than 60 per cent of users use the chat service a day and over 25 per cent post to their own stories. On average, daily users visit Snapchat 18 times a day and the whole userbase spends an average of 25 to 30 minutes every day.
Last year, the company then known as Snapchat renamed itself Snap as part of a broader ambition to be considered a camera company, which also coincided with the release of its first hardware product, the video sunglasses Spectacles. Snap said that revenues from Spectacles, “our latest effort to reinvent the camera”, were “not material”. It refers to Spectacles as “our first hardware product”, suggesting more may be in development.
Venture capitalists Benchmark Capital Partners and Lightspeed Venture Partners have the largest stakes after the founders, with Benchmark standing to make up to $3.2bn and Lightspeed looking at $2.1bn if it hits a $25bn valuation. Other investors, with stakes of less than 5 per cent, include Fidelity, Kleiner Perkins, IVP and Alibaba.
Mr Spiegel was paid $2.4m in 2016, with a $500,000 salary supplemented by a $1m bonus and $890,000 going to his security costs. Imran Khan, Snapchat’s chief strategy officer, received $145m in stock in 2015, the year he joined from Credit Suisse.
Additional reporting by Nicole Bullock