Daily Management Review

After Year's Biggest IPO, Snap’s Shares Rise


After Year's Biggest IPO, Snap’s Shares Rise
Overcoming doubts about the loss-making messaging app company's slowing user growth and as investors flocked to buy into the hottest technology stock offering in three years, Snap Inc's shares ended up 44 percent on their first day of trading.
Giving the company a market value of $28.3 billion, on a par with CBS Corp and Target Corp, the stock closed at $24.48 on the New York Stock Exchange on Thursday, well above the initial public offering price of $17 per share on Wednesday.
At one point the stock hit a a market value of $29.1 billion and a high of $26.05.
$3.4 billion in its IPO on Wednesday, more than the $3 billion Facebook Inc offered to pay for the company in 2013, was raised by the owner of Snapchat, an app popular with young people for its disappearing messages.
The company is poised to increase its deal size to $3.9 billion with a full greenshoe option to issue more shares likely to be exercised.
Despite the fact that Snap has never made a profit, since Alibaba Group Holding Inc in 2014, that makes it the biggest U.S. technology IPO.
To ring the opening bell before leaving the building to watch festivities away from the spotlight he famously avoids, secretive Snap co-founder Evan Spiegel, who usually favors sweats or a button-down shirt, showed up to the floor of the exchange in a suit and tie. He earned $272 million on the offering.
The company is yet to convert the cool factor into cash and the IPO has tested investor appetite for a social media app that is popular among people under 30 for applying bunny faces and vomiting rainbows onto selfies.
Los Angeles-based Snap's net loss widened 38 percent last year to $514.6 million despite a nearly seven-fold increase in revenue. As it grapples with decelerating user growth, it faces intense competition from larger rivals such as Facebook's Instagram.
Since the company wanted to focus on securing mutual funds as long-term investors rather than hedge funds looking to quickly sell, and hence despite the order book was more than 10 times oversubscribed and Snap could have priced the IPO at as much as $19 a share, it chose not to do so.
In order to maximize the chances of a first-day spike, underwriters often price their IPOs below where they estimate demand.
However, long term success is not ensured by such a pop though it can be positive for a company's morale. Shares of social media company Twitter Inc are now trading at $15.84, down nearly 40 percent from the $26 IPO price and nearly 70 percent from the opening price of $50.09 even as they had surged 93 percent when they first opened on the New York Stock Exchange in 2013.
In order to make sure the third-biggest technology IPO ever went smoothly, the New York Stock Exchange carried out a trial run last week. When its technology was unprepared for the level of demand for the shares, Nasdaq Inc received intense criticism for botching Facebook's 2012 IPO.
After 2016 marked the slowest year for tech IPOs since 2008, Snap's offering was well timed, with investors clamoring for fresh opportunities. Helped by optimism about the Republican administration's domestic proposals, including plans to reform taxes paid by businesses and with the benchmark S&P 500 surging more than 11 percent since the Nov. 8 election, the broader market has also been buoyed in the months following the election of U.S. President Donald Trump.
Snap has emphasized how important Snapchat is to its users, how long they spend on the app and the revenue potential of the emerging trend for young people to communicate with video rather than text to justify its relatively high valuation and fend off concerns about slowing user growth.