2016 was an uneventful year for the IPO market. The year saw the lowest number of deals since 2009 and raised less than $19 billion, the lowest level of proceeds since 2003.
According, to data from Renaissance Capital, there were 96 offerings of companies with a market value of more than $50 million in the United States, down 41 percent from 2015.
There were several geo-political and financial events that affected the growth of the IPO market last year. These include the market freefall (steep slide in the equities market), the Brexit and the Presidential elections.
Renaissance Capital stated in their 2016 IPO review, that there has been a drought of technology IPO’s. But with recent high-growth tech IPOs like Twilio and Nutanix trading very strongly the review stated that there was a possibility of tech IPO activity picking up significantly in 2017 and 2018.
Snapchat is a social media app that was created in 2011. It has since then amassed 150 million daily users. The company that runs Snapchat, Snap Inc., is headed for one of the largest IPO’s of 2017.
Snap Inc. filed confidentially to go public, with an eye toward being valued at more than $30 billion. That would make Snap the third-most-valuable technology company at the time of its market debut, after Alibaba and Facebook.
Several tech companies prefer this secret IPO route. This is permitted under the JOBS Act (Jumpstart Our Business Startups) which allows companies with less than $1 billion in revenue (known as “emerging growth companies”) to begin the IPO process without disclosing information to the public--this includes their correspondence with the SEC. They must publicly disclose their offering documents roughly 15 days before embarking on a “road show” for prospective investors.
It is amply clear, that Snap wants to go the Apple and Facebook way, rather than the Twitter way. Snap very recently released its first piece of hardware, ‘Spectacles.’ In May 2016, Snap raised a whopping $1.8 billion, which sent the company’s total funding since its inception in 2011 flying past the $2.5 billion mark. In 2016, the company made several acquisitions. It acquired augmented reality (AR) startup Cimagine Media, Vurb, Seene and also an ad-tech company called Flite.
In 2016, we were given a good glimpse of Snap’s aspirations through its acquisitions and product launches across AR, VR, 3D, cameras, content, and advertising. Snap is preparing to go on its roadshow soon, and these acquisitions and innovations are intended to show that the company is more than a simple social media app. The idea is to put it in the same class as the Apple and Facebook IPO’s (whose shares are up) rather than the Twitter IPO (whose shares have been languishing).
The acquisitions and the new hardware may be a way for Snapchat to assuage the fear of investors, that their only source of revenue is the advertisements. These fears may be unfounded. Per forecasting firm eMarketer, Snapchat is forecast to reach nearly $1 billion in global advertising sales in 2017, up from an estimated $366.7 million in revenue this year.
Facebook generated $3.7 billion in revenue and a $1 billion profit and in 2011, the year before its May 2012 IPO.
Only the market knows whether Snap will be the catalyst the IPO market needs to jump back to normal or whether it will just be another big boom with no real substance.
Suktika Banerjee is an Indian lawyer currently pursuing her LLM in Corporation Law at NYU. Prior to attending NYU, Suktika completed her law degree from Gujarat National Law University, India. Outside of the law, she enjoys reading crime fiction and eating desserts.