10 February 2017

Snap files for IPO

Snap, the parent of social media photo sharing application Snapchat, is trying its hand at the capital market by filing paperwork with the New York Stock Exchange for an initial public offering worth around USD 3,000 million. Founders Evan Spiegel and Robert Murphy, as well as venture capitalists Lightspeed and Benchmark Capital, are expected to divest their stakes through the deal by the end of this year. Underwritten by financial giants including Morgan Stanley, Goldman Sachs and JP Morgan, the IPO is the second largest to have been announced globally in the past four years, according to Zephyr, the M&A database published by Bureau van Dijk. The highest valued IPO during the period is Hotel Lotte’s KRW 5,742 billion (USD 5,002 million) planned listing on the Korea Exchange, which is also set to take place this year.

Released in 2011, Snapchat is essentially a platform that enables pictures to be shared temporarily with other people. A popular “selfie tool” among youngsters, it comes with quirky features that, for instance, allow users to digitally edit animal images onto their faces. Snap also operates Discover, where media content, such as articles and videos, is published transiently. Furthermore, the company’s business scope has gone beyond the software sector as it launched its own smart-eyewear brand Spectacles last year after acquiring Vergence Labs, a Californian smart glasses maker, in 2014.

Just like other social networking sites, Snap largely earns its profits from advertisements on its platform. Although its share of the digital advertising sector in the US currently remains a far cry from Facebook and Google’s (which together accounted for 58.0 per cent of the industry in 2016), Snap’s revenues are likely to grow threefold to USD 1,000 million in 2017 from the previous year, according to the Economist. This would appease advertisers, which have long faced an industry dominated by the two internet giants, according to Chris Vollmer of audit firm PricewaterhouseCoopers, as reported by the newspaper.  

The Economist, however, also highlighted some concerns over the sustainability of Snap’s post-IPO growth. Unlike Facebook and Google, Snap may find it challenging to break into emerging markets, where its data-consuming application can be more costly for users compared to those in rich Western countries. Other obstacles plaguing the photo sharing company include increasing competition from Facebook unit Instagram, which has just launched its own “stories” feature to rival Snap. 

Last year, Snap successfully raised USD 1,809 million in a series F funding round involving Alibaba Group, Yahoo!, Sequoia Capital and other subscribers. According to Zephyr, it also purchased several technology companies during the period, with the highest valued transaction being its USD 100 million acquisition of Bitstrips, a mobile application developer, in July.

© Zephyr