Snap Inc., the parent company behind the popular Snapchat application, is currently involved in its IPO roadshow. The event, taking place at New York’s Mandarin Oriental Hotel, is seeing the management answer questions from potential investors and it appears that nothing the latter can do or ask, can make Snap break a sweat.
The company is on a roll and is managing to field all questions put to its by investors, including skepticism over its claims of being more valuable than Facebook. The claims were made on the basis of the of revenue at the time of the latter’s IPO in 2012. And while negative investor feedback led to the company cutting its valuation down to somewhere between $19.5 billion and $22.3 billion from its initial target of $20 billion-$25 billion last week, Snap still appears confident of its IPO being a grand success.
As per Reuters, CEO Evan Spiegel, 26, who was introduced as a “once in a generation founder”, waved off investor concerns regarding slowing growth and said that Snapchat had the potential to change how people communicate. While there are certainly people who would debate upon how far Snapchat has managed to realize this potential, there is no doubt that the company has manged to develop a significant momentum around its impending IPO.
On the topic of declining user growth — which is mostly attributed to the growth of rivals like Instagram and Facebook — Snap pointed towards several technical difficulties that were keeping the company from gaining suitable momentum outside the US. The signal was clear though, technical difficulties can be resolved and Snap expects user growth to start growing again in the future.
Interestingly, no questions were raised regarding Snap’s new share structure. There were apprehensions that a section of investors could refrain from participating in the IPO due to the new share structure, that does not confer any voting powers to new investors. On the other hand, Co-founders Spiegel and Bobby Murphy have 10 votes for each of their shares. Pre-existing investors have one vote for each of their shares.
Investors and hedge fund managers have criticized this kind of share structure in the past, stating that it gave vast, sweeping powers to the founders and kept the investors — which generally have a lot to gain or lose depending upon a company is doing well or not — from having a say in the running of the company. However, none of the 400 or so investors present during the meeting seem to have brought this point up.
Meanwhile, Snap kept from divulging clear details regarding user metrics. Apparently, Chief Strategy Officer Imran Khan asked investors to guess user engagement by looking at Snap’s cost of revenue. In case you are wondering, the cost of revenue can be used to gauge engagement because it depends upon how much Snap has to pay partners like Google and Amazon for powering data and bandwidth for its app. This in turn, is driven by user engagement.
Well, it seems like most investors still see profits in investing in Snapchat and expect the stock to go up. While some may be been scared away by Snap’s somewhat vague answers, many others — parhaps remembering Facebook — are sticking around. With the IPO right around the corner, it doesn’t seem like anything could go wrong for Snap Inc. now.
