February 16, 2017, 11:14 AM

Snap’s pitch to investors for a $3.2 billion share sale comes with no votes

Snapchat’s owner will offer shares at $14-$16 each and investors will have no input on the social media company's director nominations, executive pay and other issues.

Lead Photo

(Bloomberg)—Snap Inc. is pitching a stock to investors that’s more expensive and comes with less shareholder control than any social media company before it.

The result? The company has had to temper its expectations for how it thinks public markets will value the company after its initial public offering.

Snap, which set the terms for its IPO Thursday, will offer 200 million shares for $14 to $16 apiece, according to a filing. That would give the disappearing-photo application maker a market value of $16.2 billion to $18.5 billion, based on the total shares outstanding after the offering.

It’s quite a haircut from earlier plans. In November, the company was eyeing a market value of $20 billion to $25 billion, a person familiar with the matter said at the time. A month earlier, that range was closer to $25 billion to $35 billion, people familiar with the matter said, with one suggesting it could be as much as $40 billion.

Richly valued

Still, the high end of the range is more richly valued than its peers when they went public. Snap’s asking investors to buy into a stock that’s valued at 19.7 times forward 12-months advertising sales, just over the 19.4 times that Facebook had at the time of its IPO. Twitter Inc. was valued at 13 times, according to data from Bloomberg Intelligence.

For investors choosing which social media companies to invest in now, the difference is more stark. Facebook Inc. currently trades at about 10.2 times forward 12-month sales, while Twitter is half that.

What’s changed since last year mostly comes down to disclosure. In publicly moving forward with the IPO process, the secretive company has had to share details on its slowing user growth and losses.

By the fourth quarter, average daily active user growth fell below 50% in those three months for the first time since at least 2014, according to the deal prospectus.

Snap posted a net loss of $514.6 million in 2016, which widened from $372.9 million a year earlier. Still, revenue growth is a bright spot, climbing about sixfold to $404.5 million from $58.7 million in the same period.

No votes

New shareholders will have to trust management to maintain revenue growth and execute on the vision to be a key part of the way people communicate.

Snap is listing nonvoting shares, the first company to do that in the U.S., according to the company’s deal filing. That means stockholders will have no sway over things like director nominations and executive compensation, and they won’t be able to bring matters before the annual meeting. The trust—and control—will be squarely in the hands of majority holders and co-founders Evan Spiegel and Bobby Murphy.

On a fully diluted basis, which accounts for options and convertible preferred stock conversions, Snap would have a valuation of between $19.5 billion and $22.2 billion, people familiar with the matter said earlier.

Next up for Spiegel and fellow executives will be the roadshow, where management travel to cities including Los Angeles, San Francisco and New York to pitch the stock to prospective investors.

Mandarin Oriental

They’ll hit Manhattan on Feb. 21, inviting potential investors to a group lunch at the Mandarin Oriental, according to an invitation to the event obtained by Bloomberg. Spiegel, along with chief strategy officer Imran Khan and finance chief Drew Vollero, will pitch the company’s plans in the ballroom on the 36th floor of the hotel.

Of the technology and communications IPOs since 2007, Snap’s offering is poised to trail only Alibaba Group Holding Ltd.’s $25 billion share sale and Facebook’s $16 billion raise. It’s also set to be the first U.S. listing from that industry this year, according to data compiled by Bloomberg.

Snap is aiming to sell 145 million shares, with the proceeds going toward operating expenses, capital expenditures and potential acquisitions. The remainder of the shares offered come from selling stockholders, including Benchmark and Lightspeed Venture Partners.

Snap co-founders Spiegel and Murphy each plan to sell 16 million Class A shares, which could bring in as much as $256 million apiece. After the offering, each will maintain a 44% control over the votes.

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