By MAUREEN FARRELL for the Wall Street Journal.
Snap Inc. has confidentially filed paperwork for an initial public offering that may value the popular messaging platform at as much as $25 billion, a major step toward what would be one of the highest-profile stock debuts in recent years.
The company, formerly known as Snapchat, made the filing with the Securities and Exchange Commission in recent weeks, according to people familiar with the matter.
An IPO, expected as early as March, could value Snap at between $20 billion and $25 billion, one of the people said. The Wall Street Journal reported last month that the valuation could be $25 billion or more. The reason for the discrepancy isn’t clear.
If Snap pursues an IPO at the currently expected valuation, it would still be the largest U.S.-listed technology offering since Chinese e-commerce company Alibaba Group Holding Ltd. made its debut at a $168 billion valuation in 2014.
ENLARGEThat could provide a boost for the IPO market, which has had a dismal year. Just 103 companies have listed their shares in the U.S. in 2016, raising $21.8 billion, according to data provider Dealogic. That is down from 165 deals raising $34.6 billion at the same juncture last year and marks the lowest year-to-date level for deals since 2009 and proceeds since 2010. Technology IPOs have experienced similar weakness.
But bankers and investors are optimistic that a successful debut for Snap would convince other bellwether tech companies to tap the IPO market.
The recent strong performance of the few tech-company shares that have started trading this year has given market participants confidence that the new-issue market is due for a rebound next year.
Snap would become the first of a small batch of highly valued and closely watched venture-backed companies, such as Uber Technologies Inc., to test the public markets.
The four-year-old company, whose Snapchat app lets users send disappearing messages from their smartphones, was eligible to file its IPO paperwork confidentially because it expects to have less than $1 billion in revenue this year. Under the 2012 Jumpstart Our Business Startups Act, companies with annual revenue below $1 billion have the option to file an initial draft of their IPO prospectus with regulators and make adjustments before unveiling it publicly.
Morgan Stanley and Goldman Sachs Group Inc. would be lead underwriters of a Snap IPO, according to people familiar with the matter. Snap executives plan to be relatively conservative in pricing the offering, the people said.
ENLARGERecent tech offerings have generally been priced conservatively. The average multiple of total company value to expected sales for tech companies at their debut this year was three times, compared with 3.6 times last year and 4.9 times in 2014, according to a recent report from Deutsche Bank’s equity-capital-markets group.
There is no guarantee that Snap, based in Venice, Calif., will proceed with a share sale in the time frame it currently envisions, or that it will achieve the valuation contemplated.
Snap’s main source of revenue is selling ads on Snapchat that are slotted in between stories contributed by media partners and video diaries posted by the app’s users. Marketers also can buy location-based or event-based geofilters and “lenses” that add quirky characteristics to photos and videos.
Snap has been working hard to win over Madison Avenue ahead of the IPO. Advertisers are intrigued by the Snapchat app, which reaches more than 150 million users daily, including 41% of 18- to 34-year-olds in the U.S., according to Nielsen.
But marketers and ad agencies have been frustrated with Snap’s tight controls on ad content and the long wait times some have experience getting ads approved by the platform. Others say those problems amount to growing pains.
Snap has been taking some steps to make life easier for advertisers. It released an “application programming interface” that helps advertisers buy ads through a more automated process. And it has lifted some previous restrictions, allowing marketers to target customers using email databases and other data sources.
The company’s revenue has grown quickly since it started running ads in 2014. Snap told investors earlier this year that it expected revenue of between $250 million and $350 million in 2016 and as much as $1 billion in 2017.
It is already ahead of the top end of its 2016 forecast, people familiar with the matter have said. In 2015, the company generated just $60 million in revenue. Snapchat loses money, according to people familiar with the matter, as it focuses on revenue growth and finding ways to make money off its big user base.
In September, the company renamed itself Snap in a bid to show that its ambitions extend beyond Snapchat. As part of the change it unveiled camera-equipped sunglasses, called Spectacles, that can record video in short bursts. The foray into hardware potentially gives Snap another source of revenue, but poses new challenges such as managing inventory.
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