Earlier this month, Snap Inc., parent company of Snapchat, announced it will look to raise $3 billion in an initial public offering.
The Wall Street Journal has learned that the company has set a valuation for itself between $19.5 billion and $22.2 billion. The valuation range is at the lower end of the $20 billion to $25 billion range the firm was seeking and prices each share at $14 to $16. The Journal noted that this would be the largest U.S.-listed tech offering since Alibaba Group Holding Ltd.’s (BABA) IPO in 2014. The company will soon begin the "roadshow" to pitch the stock to potential investors.
In an S-1 filing, Snap, which lists itself as a camera company, said it will look to list its Class A common stock on the New York Stock Exchange under the ticker symbol SNAP.
Morgan Stanley (MS), Barclays, Goldman Sachs Group Inc. (GS), J.P. Morgan (JPM), Allen and Co., Deutsche Bank AG (DB) and Credit Suisse (CS) are all listed as underwriters on the offering. (For more, see also: No Delay for Snapchat's IPO Roadshow.)
In 2016, Snap generated $404.5 million revenue, up from $58.7 million in 2015. The 2016’s fourth-quarter revenue was $165.7 million, up from $128.2 million in the third quarter and $32.7 million in the fourth quarter of 2015.
As with revenue, losses continued to increase over time. Snap lost $515 million during 2016, up from $372.9 million in 2015.
Snap also generates the sheer majority of its revenue from North America. In the fourth quarter, $145.4 million came from North America, while $14.7 million came from Europe and just $5.7 million can from the rest of the world.
Average revenue per user, a key metric, increased to $1.05 per user in the fourth quarter of 2016, up from 84 cents in the third quarter and 31 cents in the fourth quarter of 2015. (For related reading, see: Snapchat Investors Needn't Worry About Voting Rights.)
Snap, which generates the majority of its revenue from advertising, had 161 million daily active users at the end of December, up from 110 million in December 2015 and 148 million in June 2016. The company said on average 158 million use the service every day at the end of the fourth quarter, creating more than 2.5 billion Snaps.
In addition to advertising, Snap recently launched wearable sunglasses, known as Spectacles and hinted it may make other products. "While we view Spectacles as an extension of Snapchat, adding hardware products and services to our product portfolio subjects us to additional competition and new competitors," the S-1 filing said.
In the filing, Snap, led by CEO Evan Spiegel, said it may never be profitable, listed under one of its risk factors in the documents:
We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
We began commercial operations in 2011 and for all of our history we have experienced net losses and negative cash flows from operations. As of December 31, 2016, we had an accumulated deficit of $1.2 billion and for the year ended December 31, 2016, we experienced a net loss of $514.6 million. We expect our operating expenses to increase in the future as we expand our operations. Furthermore, as a public company, we will incur additional legal, accounting, and other expenses that we did not incur as a private company. If our revenue does not grow at a greater rate than our expenses, we will not be able to achieve and maintain profitability. We may incur significant losses in the future for many reasons, including without limitation the other risks and uncertainties described in this prospectus. Additionally, we may encounter unforeseen expenses, operating delays, or other unknown factors that may result in losses in future periods. If our expenses exceed our revenue, our business may be seriously harmed and we may never achieve or maintain profitability.
Engagement is a chief concern for Snap, which has the majority of its users between 18 and 34 years old.
In the filing, Snap said users who visit Snapchat who are 25 and older visit the app approximately 12 times and spend approximately 20 minutes a day on it, as of December 31, 2016. Users younger than 25 visited the app more than 20 times, spending more than 30 minutes per day on average.
Instagram, owned by Facebook Inc. (FB) may be attracting some engagement away from Snapchat, with its recently launched Instagram Stories feature. Snap's S-1 specifically called out Instagram, as well as other services, for being competition for time spent on the service.
In addition to Spiegel, who is 26, Snap has a fairly young executive team. Its Chief Technology Officer, Bobby Murphy is 28, while its Chief Strategy Officer, Imran Khan is 39. Its Chief Financial Officer, Andrew Vollero, is 50 and its General Counsel is Chris Handman, 44.
Along with Spiegel and Murphy, Snap's board of directors includes Michael Lynton, who is chairman of Snap, along with ex-Procter and Gamble Inc. CEO A.G. Lafley.
As of December 31, Snap had 1,859 employees around the world, with its principal executive offices located at 63 Market Street in Venice, California.