This morning, shares on Snapchat parent company Snap, Inc. will start being openly traded on the stock market. The company sold 200 million shares at $17 apiece, raising $3.4 billion in the process. Investor demand was high, according to Recode, which noted that there was 10 times as much demand as there were shares available. All of this is kind of financial gobbledygook, so we’ll try and explain.
What’s an IPO?
IPO stands for “initial public offering,” and it’s when companies begin to sell shares in themselves to the public, which today mostly means that they offer shares to wealthy financial-management organizations on Wall Street. It also means that the company will be listed publicly on the New York Stock Exchange, and issue quarterly reports on its financial status and outlook for the future. Lastly, it will assign an actual value to anyone — employees, investors, and founders — who holds a stake in Snapchat, turning their equity into more tangible, less speculative holdings.
Why is Snap IPOing now?
Put simply, the company is finally big enough to make the ask. Theoretically, IPOs happen so that companies can quickly bring in money to fund longer-term goals (in practice, they’re also an early chance for founders and investors to convert their equity to cash). Snap has never turned a profit, but it’s very popular, and has seen a meteoric rise over the past five years. Also, its market penetration among Americans between 18 and 34 is monstrous. (Half of people in that age range open Snapchat every day!)
Its IPO is also the first large tech offering in a long while. Generally, tech IPOs are attractive because they’re for companies with global reach and influence, and relatively low operating costs. Facebook, for instance, is everywhere, but it doesn’t have to worry about physical goods and supply chains in the same way that a company like Apple does. No tech companies IPOed in 2016, and some investors would welcome another chance to plant stakes in Silicon Valley.
Snap has a valuation of $24 billion. That’s slightly higher than the $3 billion that Facebook CEO Mark Zuckerberg reportedly offered for the company a few years ago.
What does stock in Snap get you?
A chance to make some money if Snap does well — but not much else. Snap is only offering nonvoting shares, which means that anyone buying Snapchat shares will receive a stake in the company, but won’t be able to directly influence company decisions or structure. While setting up shares in two classes — essentially those with voting power and those without — is an increasingly common gambit for companies, Snap eliminating any voting power at all for shares purchased in the IPO is controversial. Part of the appeal of buying into an IPO is obtaining a voice in that company. CEO Evan Spiegel and his co-founder, CTO Bobby Murphy, retain a majority of the voting shares, and by that virtue, outright control of the company. Of course: It’s not controversial enough that people aren’t planning to buy Snapchat.
How do people think the stock will do?
The big question is whether Snapchat will see success à la Facebook, or struggle as Twitter has since its IPO in 2013. During its pitch to investors, Snap spent a lot of time fielding questions about how it plans to make money. A lot of people use Snapchat, but it lost $514 million last year. In contrast, Facebook was profitable when it decided to finally go public. User growth has also slowed (Snap blames this on a software bug, conventional wisdom places far more blame on Facebook biting its style). As a business, it is still maturing, and that might keep some investors from buying in.
Is this going to change Snapchat or Snap?
It’s doubtful that the IPO itself will change Snap. Like I said before, the shares for sale don’t come with voting rights. But CEO Evan Spiegel has shown a willingness to try weird, new things and change his product significantly, and one of Snap’s greatest strengths is its ability to stay nimble. Facebook’s current product strategy is to look at what Snapchat’s doing, wait a few months, and then copy it shamelessly. And the company is already experimenting with nifty gadgets like its Spectacles, which have a camera built in. If Snap wants to stay innovative, it has to keep changing.
Can I buy Snap stock?
I mean, sure. You can’t just, like, log in to the app and ask for it, but talk to a broker or financial adviser. Tell them, “Hey, let’s get some of these shares,” and they’ll see what they can do. You could even just start an Etrade account and buy it directly (the ticker symbol is SNAP).
Should I buy Snap stock?
I am not licensed to give financial advice, and I believe that the sick system of global financial capitalism needs to be completely dismantled, so you should not listen to me. I will say that Snap, given what we know about revenue and growth, is definitely not a surefire success — consider, too, that IPOs, despite having “public” in the name, usually benefit Wall Street types more than anyone on Main Street. If you’re willing to risk not recouping the investment, then maybe you’re ready to buy Snapchat stock.