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Snap Promises Little but Shoots for the Sky in its $3 Billion IPO Pitch

Snap Promises Little but Shoots for the Sky in its $3 Billion IPO Pitch
Outlining aggressive expansion plans but offering new investors no say on how the company is run and no promise of profits, Snapchat owner Snap Inc shot the opening salvo in its $3 billion initial public offering.
Focusing on its rapid growth of active users, looking past its widening losses and the firm grip of its founders were the issues that Snap’s IPO registration document set for its upcoming marketing campaign.
Snap revealed that with a rise of 48 per cent, the number of Snap's daily active users grew to an average of 158 million at the end of December. However, from $372.9 million the year before, its net loss widened to $514.6 million in 2016.
Some analysts were taken aback that the company was just beginning to reap cash from its product, while Snap will have time to polish its marketing pitch in the run-up to the IPO planned for March.
"What surprises me the most is that it is still very early days when it comes to Snap making money," said Rohit Kulkarni, managing director at private securities investment firm SharesPost.
Late last year, Snap was very confident while getting registered with the U.S. Securities and Exchange Commission for an IPO. Sources familiar with the matter previously said that even some of its IPO underwriters had not seen it prior to publication as it had kept the filing under such tight wraps.
With shares on offer not granting voting rights to stock market investors, it would become the first U.S. company to go public, Snap said in the published IPO registration document. Control of the company would be retained with its founders, Evan Spiegel and Robert Murphy.
According to sources, Snap could be valued at between $20 billion to $25 billion. And since Facebook, that valuation would be the highest for a U.S. technology IPO.
Snap started selling $130 video camera glasses and with an app that sends disappearing messages, rebranded itself last year, it was launched in 2012. Seeking to challenge the dominance of internet giants such as Facebook and Alphabet Inc's Google, it generates the majority of its revenue from advertising.
"The industry has been crying out for new advertising units" says Ian Schafer, founder and chairman of ad agency Deep Focus, referring to the tight hold Facebook and Google have on the digital advertising marketplace.
Its main competitors would be Apple Inc, Google, Twitter Inc, Facebook and its photo-sharing platform Instagram, the company said in its IPO registration document.
With a $1 million bonus, $503,205 in salary was earned last year by Spiegel, the 26-year-old Snap co-founder. And with a $5.2 million bonus, a salary of $241,539 last year was earned by Imran Khan, Snapchat's chief strategy officer whom it hired from investment bank Credit Suisse Group AG in 2014.
Through a unique three-share class structure, Spiegel and Murphy will maintain tight control over Snap's stock. With the right of 10 votes for every share will be given to Spiegel and Murphy by the structure. While new investors will have no voting rights, existing investors will have one vote for each of their shares.

Christopher J. Mitchell

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