The IPO Buzz: Snap Storm

Last week it was Snap here, Snap there, everywhere a Snap, Snap. That’s right! Snap filed its proposed offering terms for its pending IPO.

On Thursday morning, Feb. 16, Snap (SNAP – proposed) posted pricing terms to offer 200 million shares of Class A common stock at $14 to $16 each to raise $3 billion. The deal is expected to be priced next week – after the close on Wednesday, March 1 – to trade Thursday morning, March 2, on the New York Stock Exchange under the proposed symbol “SNAP.”

The media went wild.

The stories ran everywhere from the major news outlets to the smallest online services. Most were negative.

Not the Wall Street professionals: They loved the story.

So it was the media: “Thumbs down” vs. the pros: “Thumbs up.”

Recommended Reading

Before getting into the differences between the media and the Wall Street pros, let’s take a look at the basic advice given to potential investors. It is: Read the preliminary prospectus. The most important “must read” section is called “Risk Factors.” Nevertheless, let’s make it easy with the Snap offering.

On’s front page, find Snap under “IPO Calendar.” Click on Snap and scroll down on the left to “View Prospectus.”  Then click on the amended filing found here: Snap (S-1/A) and it opens to the prospectus dated Feb 16. It has nearly 250 pages. Once again, the most important spot to read is the section detailing the “risk factors.”

The Snap “Risk Factors” start on page 15 and run through page 46. The long list begins with: “Our ecosystem of users, advertisers, and partners depends on the engagement of our user base. We anticipate that the growth rate of our user base will decline over time. If we fail to retain current users or add new users, or if our users engage less with Snapchat, our business would be seriously harmed.” It goes on for 31 pages.

The Media

Every time you open an online story about Snap’s IPO, it is a piece about why the author does not like the company – and good reasons are given.

Note: The 200 million shares of Class A common stock being offered in the IPO have no voting power. In contrast, the 279.5 million shares of Class B common stock have one vote each – and the 215.9 million shares of Class C common stock have 10 votes each.

Worth remembering: “The Class C common stock, which is held by our founders, each of whom is an executive officer and a director of the company, will represent approximately 88.5 percent of the voting power of our outstanding capital stock following this offering,” Snap’s prospectus says.  

Please note: Insiders will offer 55 million shares of Class A common stock in the IPO – or 27.5 percent of the 200 million shares of Class A common stock that Snap registered in its S-1/A filing with the SEC.

After the IPO, there will be 661,865,469 shares of Class A common stock outstanding, according to the prospectus.

There’s more: For the year ended Dec. 31, 2016, Snap reported total costs and expenses of $924.9 million. The company generated revenue of $404.5 million for that year. Snap’s net loss for that year was $514.6 million, the prospectus says. The six-year-old Snap reported an accumulated deficit of $1.2 billion.

The naysayers have been having their day.

The Pros

But Wall Street is about opinions and not everybody thinks the same.

The word around the Street is that the pros were thinking about a Snap pricing of $20 per share and the company filed for an IPO at $15. This is the mid-point of the $14-to-$16 price range in the SEC filing. The pros’ take was that this could be a deep enough discount to get all 200 million shares out the door and for the IPO to trade at a premium.

We will find out next week.

A Blank Slate

So what about this week? It starts with a federal holiday. The New York Stock Exchange and the NASDAQ will be closed on Monday, Feb. 20, for Presidents Day, also known as Washington’s Birthday. The IPO calendar is clean and green. There is nothing on it. But that could change when the SEC’s filing window re-opens for business on Tuesday morning.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinion.