Coverage: Snap IPO pops 44 percent in first day of trading

Stock in Snap Inc., the parent company of Snapchat, began trading on Thursday and closed up more than 44 percent from its pricing at $17 per share, making its millennial founders multibillionaires.

Anita Balakrishnan of CNBC had the news:

More than 200 million shares — the entire size of the offering — changed hands over the course of the day, accounting for roughly 10 percent of the total volume of trading on the New York Stock Exchange on Thursday.

The stock opened shortly before 11:20 a.m. on Thursday in New York, and started trading at $24 a share, rising 41.2 percent from its pricing at the open. The company, trading under the ticker SNAP, priced its public offering at $17 a share on Wednesday.

Share prices rose as high as $26.05, according to FactSet, and fell as low as $23.50.

The opening price of $24 puts the company’s market capitalization at about $33 billion, about the size of Marriott and Target. Twitter’s market cap is about $11 billion, while Facebook’s is about $395 billion.

Shawn Tully of Fortune reported that the company left money on the table:

But if the creators of Snapchat are so smart, why did they allow their Wall Street underwriters to price the shares at far less than they’re really worth, depriving the money-losing startup of a mountain of cash?

Indeed, the Snap IPO is the most notable case in years of a classic Wall Street practice: Getting startups to sell shares on the cheap, known in the trade as “IPO candy,” to the investment banks’ most lucrative clients. A syndicate led by Morgan Stanley, Goldman Sachs and J.P. Morgan pre-sold 145 million shares in Snap at $17 a share, raising $2.45 billion in cash needed to bolster its treasury. By the close of trading, Snap shares had jumped 44% to $24.51. The privileged institutions that bought at $17 and either held or sold during the day, reaped a $1.1 billion windfall overnight.

Snap brought a fresh round of jubilation to an already euphoric market. Here’s glamorous newcomer, delivering a big, old-fashioned pop, after a long drought of IPOs. But Snap made a bad deal. Had it sold those 145 million shares for what investors were really willing to pay – $25 a share — it would have raised not $2.45 billion, but $3.55 billion. In a single day, Snap left $1.1 billion on the table, money that was pocketed by mutual funds, ETFs, and hedge funds that could have greatly strengthened its balance sheet.

Alex Barinka and Sarah Frier of Bloomberg News reported that investors must put their faith in leadership:

The company also needs to persuade investors to put their complete trust in its management: It listed nonvoting shares, the first company to do so in the U.S., according to its 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. Co-founders and majority holders Spiegel and Murphy will be responsible for the decisions that lead to Snap’s success — and on the hook for its mistakes.

Snap, which posted a net loss last year of $515 million, even as revenue climbed almost sevenfold, has some things to prove. It needs to continue to increase revenue per user, address slower user growth — which fell below 50 percent in the fourth quarter for the first time since at least 2014 — and inch closer to profitability.

Its advertising model is still evolving, with many brands using the platform to experiment with one-time campaigns before committing to longer-term spending. While the advertising business has been built up from nothing in about two years, advertisers have said that the ad-buying process is still overly complicated. They’re also concerned about being able to access only a narrow demographic through Snap — its core user group of teens and people in their 20s.

Facebook, with about 1.2 billion active daily users on its website and 1.2 billion on its messaging tool WhatsApp, trades at a multiple of about 10.5 times revenue estimates for this year. Facebook’s Instagram introduced a video-reel feature — similar to Snapchat’s Stories — that already has 150 million daily users. That’s in line with Snap’s daily active count of about 158 million.