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Snap Shares Crackle And Pop With 44% Increase On First Trading Day- Update

Deadline logo Deadline 3/2/2017 David Lieberman
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UPDATE: Those who bought Snap shares for $17 should be all smiles after its first day of public trading. The stock closed at $24.48, a 44% increase over the price the underwriters paid.

It it too high? Nomura Instinet’s Anthony DiClemente thinks so, setting a target price of $16. Among his concerns: Snapchat saw a “substantial deceleration” in the growth of daily average users in the second half of 2016. “Snap’s user growth slowdown coincided with the launch of Instagram Stories, which replicated many of Snapchat’s use cases,” he says.

PREVIOUS: Shares of Snap Inc. — the parent of SnapChat —  debuted on the New York Stock Exchange today at $24, a 41.2% improvement from the $17 a share that underwriting banks and investment firms agreed yesterday to pay in the initial offering.

Snap and its insiders original set their target at between $14 and $16 a share.

At $17, the company and its backers will pocket $3.4 billion in the offering that suggests the entire company is worth at least $23.6 billion.

Investors clambered for the 200 million shares being offered in the biggest tech IPO since Alibaba went public in 2014: The pre-market offer was 10 times oversubscribed.

That suggests the IPO shares could have sold for a higher price, although it might have created problems for the company if they did so — and then watched the publicly traded shares fall short.

That happened to Facebook in 2012: Its IPO was priced at $38 a share. But three months later the price fell to about $20. That led to an SEC investigation and several lawsuits claiming that the company had not adequately disclosed financial information to all buyers.

All’s forgiven now: Facebook shares now go for about $137. It went public at a value of $104 billion, and now has a market value of more than $400 billion. That makes it about 2.2 times more valuable than Comcast and 2.3 times more valuable than Disney.

Snap created three classes of stock, and sold the public Class A shares that give buyers no opportunity to vote on company governance.

Outgoing Sony Entertainment chief Michael Lynton is chairman of the Snap board. His more than 3 million shares — divided between the non-voting Class A shares and Class B shares, with one vote apiece — are worth at least $51.3 million based on the $17 sale price.

He planned to sell 54,907 shares to underwriters, which would be worth nearly $1 million.

Snap CEO Evan Spiegel and CTO Robert Murphy, both co-founders, own Class C shares that have 10 votes apiece — and ensure that they will retain control. They rang the opening bell on the NYSE today.

They each planned to sell 16 million shares, suggesting that they would each see $272 million. Spiegel created Snapchat in 2011 as part of a product design course at Stanford University where he was a student.

Other insiders with big sale plans include Benchmark Capital (10.7 million shares) and Lightspeed Venture Partners (4.6 million).

It’s incredibly risky to bet on an ad-supported company that lost $514.3 million last year on revenues of $404.5 million. Snap is less than six years old, and has only been doing meaningful business for three years.

Snapchat enables mobile users to transmit images, video and text that self-destruct in 10 seconds or less. Many users enjoy transforming images with what Snapchat calls its “lenses.”

Buyers of Snap shares are betting that the company’s appeal to millennials — and its focus on services for smartphone cameras — will enable it to lure users from Facebook and ad dollars from television. The company says that an average of 158 million people use Snapchat each day.

Last year Snap lured Jeff Lucas from Viacom, where he ran sales and marketing for the Media Networks, to take charge of global ad sales.

Pivotal Research Group’s Brian Wieser today initiated coverage of Snap with a “sell” rating — and a target price of $10 a share. Although the company has “a promising and innovative advertising offering,” he says, it’s “still mostly unproven and difficult to quantify its ultimate scale.”

He also warns about Snap’s “sub-optimal corporate structure operated by a senior management team lacking experience.”

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