{"id":3570,"date":"2017-02-16T22:54:49","date_gmt":"2017-02-16T22:54:49","guid":{"rendered":"https:\/\/www.rsoftsolution.com\/blog\/why-snap-would-lowball-its-ipo-valuation.html"},"modified":"2017-02-16T22:54:49","modified_gmt":"2017-02-16T22:54:49","slug":"why-snap-would-lowball-its-ipo-valuation","status":"publish","type":"post","link":"https:\/\/www.rbsitsoftwaresolution.in\/blog\/why-snap-would-lowball-its-ipo-valuation.html","title":{"rendered":"Why Snap would lowball its IPO valuation"},"content":{"rendered":"


\n<\/p>\n

The short answer for why Snap lowballed its initial valuation for its initial public offering\u00a0is that it probably won\u2019t be that low for long.<\/p>\n

Normally these prices are set by expectations the underwriters and executives can divine from their conversations with Wall Street. It\u2019s essentially a matching game \u2014 how does Snap and its underwriters figure out where to price the stock in such a way that it doesn\u2019t leave too much money on the table for those involved in the IPO, and also ensures the stock has a healthy pop on its first day trading. Price it too low, and you won\u2019t get paid as much as you might. Too high, and it\u2019s an optics issue and the IPO ends up looking unsuccessful.<\/p>\n

A price range for Snap\u2019s IPO leaked late last night, which could settle its valuation close to its previous financing round<\/a>. In the scope of the financials it released<\/a> (and demonstrating its very large burn rate) in its public IPO filing it would make sense to keep things conservative. But in the end this is a calculated decision\u00a0to leak a lowballed number to gauge broader interest, and these numbers inevitably go up. This, for the most part, is just the way things are played on Wall Street headed into an IPO.<\/p>\n

Some quick mechanical points: one range would value the company between $16.2 billion and $18.5 billion based on the total outstanding shares after the offering. Another calculation including options and stock conversions places the range between $19.5 billion and $22.5 billion. Either way, both of these place the company within close shooting distance to its previous valuation, with the company raising up to $3.2 billion at the higher end of the price range. Snap\u2019s underwriters also have an option to purchase an additional 30 million shares.<\/p>\n

A lot of people are going to draw similarities between Snap\u2019s upcoming IPO next month and the Facebook IPO. As the last major ad-driven social IPO \u2014 and one of the biggest \u2014 Snap is going to be compared to Facebook\u2019s business. Snap has huge costs of revenue, though its business is very young. And to make things more direct, Facebook is increasingly copying its tactics and products in order to head off Snap potentially locking in an audience that would otherwise grow into using Facebook.<\/p>\n

(Another note from Axios\u2019 Dan Primack<\/a>: the Facebook IPO was also hit with a glitch on the Nasdaq, which could further complicate the comparison)<\/p>\n

Snap does need a successful IPO. It does need the price to go up \u2014 people want to make money, and it doesn\u2019t want to be seen as a failure like the Facebook IPO. That\u2019s going to woo additional interest in the company as a long\u00a0bet, with potentially a similar outcome to Facebook as it grows its otherwise young business into an advertising juggernaut with additional revenue streams beyond advertising. For now Facebook is a mainstay advertising, and while Snap is growing very quickly its young business needs to be proven as a consistent ad buy that would go next to Facebook and traditional media.<\/p>\n

But in reality, this is not wholly\u00a0about being trendy or making some kind of public statement about betting on the\u00a0long term for its business. Snap made it very clear that it is playing the long game beyond just an ad-driven business. It says it\u2019s a camera company, and it\u2019s trying to diversify with things like Spectacles and gunning for content \u2014 and areas that it thinks Facebook just might not be able to access.<\/p>\n

Part of the reason the Facebook IPO was so rocky was that it was also an introduction to investing for a lot of first-time investors\u00a0interested in consumer tech. Facebook\u2019s IPO in some ways on its own was unprecedented \u2014 it was one of the biggest well-known names that seemed to have a good business and good user growth going public.\u00a0Things, obviously, did not go well, and the lessons have likely been learned.<\/p>\n

Like Facebook, Snap\u2019s IPO is unprecedented in some ways. This IPO is also for non-voting stock, which makes this a special case. It will be a completely different class of demand for the shares \u2014 when you buy in, you basically get nothing except the hope and prayer of a dividend and some long-term yield. Evan\u00a0may have been\u00a0strong-armed into being conservative, but because the nature of this IPO is so unusual, it would be a very<\/em> bold (and borderline irresponsible) move to\u00a0start at the top end under assumptions of what investors are seeking. That would be in relation to\u00a0whether doing direct comparables, next year revenue projection multiples or similar effects.<\/p>\n

Another possibility of the price being lower could be related to\u00a0the\u00a0risk and uncertainty associated with it being an offering of non-voting shares, and not necessarily\u00a0because of actual demand for the stock. There have not been any major tech\u00a0IPOs in a long time (Snap\u2019s is the largest since Alibaba in 2014, which was an entirely different story). So there\u2019s probably\u00a0a lot of money sitting around,\u00a0waiting to be allocated.<\/p>\n

At the end of the day\u00a0this is just how the game is played.\u00a0Snap is going on its \u201croad show,\u201d where it will make its pitch to investors as to why they should buy the stock. As these meetings continue, expectations get closer and closer to reality, and Snap will continue to tweak that price range until it lands on what they think is going to yield the optimal outcome. Basically, expect this to change in the near future.<\/p>\n

<\/p>\n

Featured Image: Michael Kovac\/Getty Images<\/small><\/p>\n

Article source: http:\/\/feedproxy.google.com\/~r\/techcrunch\/social\/~3\/zdDAy3dNkf8\/<\/p>","protected":false},"excerpt":{"rendered":"

The short answer for why Snap lowballed its initial valuation for its initial public offering\u00a0is that it probably won\u2019t be that low for long. Normally these prices are set by <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[10,7,14,15,6,12,11],"class_list":["post-3570","post","type-post","status-publish","format-standard","hentry","category-latest-update","tag-computer-news","tag-downloads","tag-microsoft-download-news","tag-networking-updates","tag-technology-update","tag-wordpress-plugin-download","tag-wordpress-theme-download"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t