Unicorn IPO Case Study in Silliness: SNAP

November 10, 2017

Unicorn IPO 3.o. The holy grail for tech start-up entrepreneurs, their early and latter stage investors, and of course, the Wall Street investment bankers who aspire to collect tens of millions of dollars in fees is an initial public offering aka IPO. In the case of Snap, Inc., the Venice, CA-based social media company and creator of Snapchat, the back story to the 6-year old firm’s path from start-up, to successive rounds of private placement offerings at valuations that catapulted the so-called camera company (as suggested in its IPO offering prospectus) to membership in the Unicorn Class of 2013, and then to its irrationally-exuberant public market listing in a deal that set a new standard in public company shareholder disdain by virtue of its founders retaining 90% voting control of the shares not startling simply because the founders, led by Malibu Beach bad boy Evan Spiegel, became outrageously paper rich thanks to the IPO.

More to the startle side, Snap Inc. provides a classic case study in Unicorn IPO Silliness.  As profiled in a November 10 WSJ front page story, the Snap IPO epilogue epitomizes Gordon Gekko’s favorite phrase: Greed is Good. And, if the saga of the company’s post-public float stock price sinking is a lesson in caveat emptor, it is also a sign that bubble bursting has become an acceptable by-product of investment bankers zeal and their determination to enable silliness in exchange for fat fees and ECM underwriter credits. With nearly 140 unicorns waiting their swing at the IPO bat, the Snap story suggests that dreams can come true for concept companies and their founders, even if they tend to wet the bed and dampen prospects for less-sophisticated stock investors hoping to have a piece of the next Facebook (NYSE:FB)

Whether your company is a fintech firm, a social media start-up, or an enterprise that is planning a private placement offering available to a select universe of friends and family, or seeking to raise capital from qualified investors or accredited investors via a private placement memorandum or an initial public offering (IPO),  a properly-prepared offering prospectus or offering memorandum is required by your investors and industry regulators that govern securities offerings. Issuers seeking affordable investor document solutions rely on experts at Prospectus.com.

Interviews with dozens of people close to Snap’s listing, including bankers, investors, analysts and current and former Snap employees, show that many had concerns at the time [of the company’s road shows to investors], especially about the growth prospects for the maker of the disappearing message app Snapchat. But, in a fever for a big listing—and with about $98 million in fees at stake—the IPO underwriters, led by investment bank Morgan Stanley allowed Snap to set the terms. The shares listed on March 2 and soared 44% on the first day of trading.

Competition was fierce for the Snap deal. Morgan Stanley won the lead underwriting job—tech banker Michael Grimes rented an apartment near Snap’s main office.

Goldman Sachs Group Inc. also secured a top spot, along with J.P. Morgan Chase & Co., Deutsche Bank AG , Barclays PLC, Credit Suisse Group AG and Allen & Co.

In late September, Morgan Stanley CEO James Gorman said he would encourage investors to focus more on Snap’s business than its stock price. “Stop worrying about how the price trades for a few weeks,” he said at The Wall Street Journal’s Future of Finance event. Instead, he said he focuses on the long term. What the company has done so far is “extraordinary,” he said.

Eight months later, after a third weak quarterly earnings report in a row, Snap shares are wallowing more than 25% below their offering price.snap-ipo-case-study

On Tuesday, Snap reported its quarterly loss had more than tripled, sending shares down 18% over the following two days. Its previous two quarterly reports had also made clear revenue wasn’t meeting expectations, user growth was slowing amid fierce competition from Facebook Inc. and a high-profile product launch had fizzled.

The full WSJ article is here

Unicorn IPO Case Study in Silliness: SNAP