Snapchat goes public at $33bn and makes co-founders tech billionaires
Edward Helmore, The Guardian
Snap Inc’s IPO pushes Evan Spiegel and Bobby Murphy’s company ahead of Twitter and potentially creates a serious rival for Facebook
Snap Inc, the company behind disappearing messaging app Snapchat, has gone public with stocks soaring 44% on their first day of trading and valuing the company at $28bn.
The market debut of the loss-making tech enterprise on Thursday catapulted its twentysomething co-founders Evan Spiegel and Bobby Murphy into the top tier of the tech billionaires.
Shortly after the pair rang the opening bell on the New York Stock Exchange, the company’s share price rose 41% from its guide price of $17 a share to an opening price of $24.
The stock closed at $24.48, giving the company a market value of $28.3bn, on a par with CBS and Target. At one point it reached $26.05 and a market value of $29.1bn.
The move gave a measure of comfort to investors who are expecting Snapchat’s sale to push a new generation of successful tech firms, including Uber and Airbnb, to list publicly.
Snap’s initial public offering (IPO) potentially creates a serious rival for Facebook, which has come to dominate social media and online advertising and has shown clear signs that it regards Snapchat as a potential threat.
According to Snapchat, 158 million people use the service each day and create 2.5bn “snaps” between them. User numbers are far below Facebook’s 1bn-plus but the average user is younger and spends about 30 minutes a day on the service.
Growth has slowed recently (to “just” 48% year-on-year) and while revenues have grown, from $58.7m in 2015 to $404.5m in 2016, losses also mounted to $514m in 2016 from almost $373m a year earlier.
The numbers have rattled Facebook. In 2013 Speigel, 26, and Murphy, 28, turned down a $3bn offer for the company from Facebook’s Mark Zuckerberg. At the time the company had six employees. Now each of them holds a paper fortune worth in excess of Zuckerberg’s offer.
The sale of Snap, which Spiegel describes as a “camera company”, is the largest since Chinese e-commerce company Alibaba’s initial public offering in 2014.
The launch vaults Los Angeles-based Snap ahead of Twitter, currently valued at $11bn, a tech company that was similarly hyped ahead of its IPO but that has proved a disappointment to investors.
But the sale still leaves Snap far short of Facebook, now valued at $393bn, and which has been rapidly copying many of Snapchat’s features as it fends off its newer rival.
Snap’s revenues last year were just a fraction of Facebook’s $27.6bn. Nor, unlike its far larger rival, is it profitable. But Sir Martin Sorrell, chief executive of WPP, the world’s largest advertising company, called Snapchat “very important” and said: “I think it’s a defining moment in that it could well be the third force” against Google and Facebook.
“The stock market conditions are good, there’s cash available on the sidelines so the market will welcome an offering like this,” said Josef Schuster, founder of IPOX Schuster, the index provider. “Investors are optimistic about the company’s revenue growth, so while there’s some uncertainty, they still want this stock in their portfolio.”
But others expressed wariness.
“While the company’s optimism for its potential growth makes sense given the trajectory of previous social media darlings, there’s reason for caution,” said Jessica Liu at Forrester Research.
“First, Facebook’s success is an anomaly. Second, while Snapchat has a grasp on mobile video, it’s TV-like revenue pursuit is new and untested. Snapchat has much room for improvement in the areas of user growth and delivering data and measurement to advertisers in order to live up to its high expectations.”
A drought in tech IPOs helped investors overcome concerns that Snapchat has limited options to achieve profitability. Underwriters also faced skepticism over the pricing and structure of the offering. Snap was given a valuation at least twice as expensive as Facebook, and four times as much as Twitter, while its founders and early investors have kept total control of voting rights.
The launch makes a multi-billionaire of Spiegel, Snapchat’s elusive founder, who is known to avoid company-wide meetings and manages the company’s nearly 2,000 employees without a formal headquarters or centralized management structure. In its filing, the company cited its lack of traditional structure as a risk factor to its morale.
The app, which was designed for mobile devices, is not about typing but about sharing pictures and videos and applying often surreal filters to images. More recently the company has expanded into hardware, launching video capturing spectacles.
Spiegel, Snap’s power center, is a Stanford dropout who is described as more of a product designer than tech nerd. He dates the Australian Victoria’s Secret model Miranda Kerr, dresses casually and lives primarily in Los Angeles, not Silicon Valley.
Snapchat started life as Picaboo, a “sexting” app that allowed people to send photos that would disappear after a set time limit and developed by Murphy, Spiegel and now estranged partner Reggie Brown.
By 2011, Snapchat had morphed into a sort of anti-Facebook. Instead of a world of “likes” and a history of posts, Snapchat sought to develop a platform for spontaneous communication that would instantly evaporate.
Brown fell out with Spiegel and Murphy after overhearing them talking about ousting him from the company. He sued and settled for a reported $157m.
In a video created for the public offering Spiegel, who may now be forced to become a more public figure, said the ephemerality is “why people love creating Snaps. Because there isn’t pressure to feel pretty or perfect. Self-expression isn’t a contest, it’s not about how well you can express yourself, it’s about being able to communicate how you feel, and doing that in the moment.”
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