Snap Raises $3.4B in IPO, Soaring Trades Set Value Past $20B

Snap, which rose to unicorn status based on a social media app that creates quickly vanishing photos, attracted solid investor interest in an IPO that raised $3.4 billion and sent shares up more than 50 percent above the initial offering price during the first day of trading today.

Snap (NYSE: SNAP) priced its IPO shares at $17, higher than the $14 to $16 range it estimated in an SEC filing last month. The $17 initial offering price valued the company at about $24 billion, a number that has since risen with the Venice, CA, company’s share price shooting above $25, as of this writing.

The company will reap about $2.3 billion in net proceeds from the sale of 200 million shares of Class A common stock. Snap could also sell an additional 30 million shares to its underwriters at a discount on the $17 offering price.

For every investor snapping up IPO shares, about ten times that number were ready to buy, according to Recode and other media reports. Investors apparently weren’t deterred by the fact that the Class A shares sold don’t carry voting rights, and leave more than 80 percent of the voting power to CEO and co-founder Evan Spiegel and co-founder Robert Murphy, Snap’s chief technology officer.

Snap says 158 million people use its Snapchat app daily, but its growth rate has been declining with the advent of competition from Facebook’s Instagram.

Some Silicon Valley observers say the IPO should encourage other growing tech companies to go public, even if they’re not yet showing a profit. While Snap’s revenue increased more than six-fold to $404.5 million in 2016 compared to $58.7 million in 2015, the company posted a net loss of $514.6 million in 2016, up from a loss of $372.9 million in 2015.

“Unless Snapchat’s stock price falls apart in coming months, the ability to get its IPO off the ground successfully should embolden those other young, richly valued tech companies with high revenue growth but finances that need some work,” Bloomberg columnist Shira Ovide wrote.

Venture capital firms have been waiting for an encouraging signal—worried that they paid too much for their stakes in so-called unicorn companies (privately held startups valued at over $1 billion), according to Bloomberg’s Sarah McBride.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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