Snapchat Working on IPO Valuing Firm at $25 Billion or More
October 06 2016 - 3:10PM
Dow Jones News
Snap Inc. is working on an initial public offering that could
value the popular virtual-messaging company at $25 billion or more,
in what would be one of the highest-profile debuts in years.
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's no guarantee the four-year-old Venice, Calif.,
company will proceed with a share sale on that time frame or what
its valuation might be.
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's when Chinese e-commerce company Alibaba Group Holding Ltd.
debuted 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.
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 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 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. It
isn't clear whether Snap is profitable.
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.
Snap's debut would be a boon to a technology-IPO market that has
suffered from a severe drought of new offerings. Only 19 tech
companies have gone public this year on U.S. exchanges, raising
just $3.3 billion, according to Dealogic. The overall IPO market
has been weak too largely because of the dearth of tech
offerings.
Yet a spate of IPOs in September among mostly 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.
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 has a plan for an IPO and 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 from the main app for which it is known, which makes
virtual messages disappear and is especially popular with
teenagers. 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 hasn't hired any banks as it works on a public filing,
known as an S-1, people familiar with the matter said.
Snap's chief strategy officer, Imran Khan, is part of the team
that is working on the filing, these people said. Mr. Khan joined
from Credit 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.
Yoree Koh contributed to this article.
Write to Maureen Farrell at maureen.farrell@wsj.com, Juliet
Chung at juliet.chung@wsj.com and Rolfe Winkler at
rolfe.winkler@wsj.com
(END) Dow Jones Newswires
October 06, 2016 14:55 ET (18:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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