At 11:20 a.m. on Thursday, Snap Inc. (SNAP) opened at $24 a share, 40% higher than its initial IPO price. After the initial flurry, the majority of early trading was around $24.40 a share before the stock reached a high of $25.99. It closed at $24.48, 44% higher than the set issue price of $17, bringing the company's public market capitalization to $28.33 billion.

 

Comparing it to other tech IPOs, it wasn't able to match LinkedIn's day one performance that saw its share price close up over 100% or Twitter's that rose 72 percent% its $26 IPO price. 

Pre-market trading indicates that the stock is set to rally today as well. At 5:20 a.m. it is 1.63% higher at $24.88.

IPO Pricing Higher Than Expected

Snap may not yet be profitable, but that hasn't stopped it from receiving exceptional support from investors. 

On Wednesday, the company was valued at slightly less than $24 billion. The 200 million shares offered are priced at $17 a share, above the expected range of $14 to $16, and the stock will begin trading today under the ticker symbol 'SNAP' on the New York Stock Exchange. The company has raised $3.4 billion, more than the $3 billion it was expecting, making this the biggest American tech offering since Facebook's in 2012. 

Snap has decided to not give public market investors voting rights, a controversial move which puts all the power in the hands of early investors and insiders. The head of an investor committee that advises the U.S. Securities and Exchange Commission told Reuters that the committee will meet on March 9 to review if this might have an effect on the company's public disclosures on executive pay and other governance matters. (See also: Snap Investors Needn't Worry About Voting Rights)

According to its latest S-1 filing CEO Evan Spiegel and chief technology officer, Bobby Murphy plan to sell 16 million shares each. Interest in Snap grew the morning before hitting the NYSE. By 9 a.m. it was 12 times oversubscribed, meaning there were 12 times more orders than shares available.

Financial Picture

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. 

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.

Risk Factors

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.

User Base

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 late February, eMarketer updated its forecasts for Snapchat's U.S. usage projects for 2017. eMarketer projects 70.4 million Americans will use the platform, a 5 percent boost from its June forecast for 66.6 million U.S. users for this year. eMarketer defines a user as someone who accesses a Snapchat account via a mobile phone app at least once per month.

Contrary to the company's prevalent narrative, eMarketer found that much of Snapchat’s growth is being driven by older users. In 2017, 6.4% of Snapchat users will be aged 45 to 54, a modest 4 percent increase from its prior forecast. Meanwhile, projected usage among users 24 and younger was incrementally lower than eMarketer's prior forecast.

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. 

Benchmark Capital owns 12.7% of the Class A share S and 22.8% of the Class B shares. Lightspeed Venture Partners owns 8.3% of the Class A shares and 15% of the Class B shares.
 
By contrast, Spiegel and Murphy each own 21.8% of the Class A shares, but own most of the voting power. The Class C shares have the most voting power, however, with Spiegel and Murphy owning 44.3% of the total voting power each, for a combined 88.6%.

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.First tr

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