For the past year, there has been speculation that Snap Inc., the parent company of Snapchat, was planning to have an initial public offering (IPO.) Finally, in February 2017, Snap filed the paperwork with the SEC indicating it was going to be issuing stock soon. Snap’s IPO is expected to be the most expensive tech IPO in history; Snap’s valuation could go as high as $25 billion.
Snap plans to issue common stock class A in this IPO; the common stock class A shares will have no voting rights. Private investors own Snap’s common stock class B shares, which provide one vote per share of class B stock owned. Snap’s founders own its common stock class C shares, which give the two founders ten votes per share of class C stock owned. The two founders have control of Snap through their votes.
Fun facts about Snapchat: Snapchat’s original app name was “Picaboo.” Mark Zuckerberg of Facebook tried to buy Snapchat for $3 billion in November 2013; the founders of Snapchat rejected that offer. The majority of Snapchat users are 18 to 34 years old. On average, daily Snapchat users visit the app more than 18 times per day, spending 25-30 minutes in the app per day.
Questions
When Snap issues these common stock class A shares, what impact will that stock issuance have on Snap’s assets, liabilities, and equity?
Will this IPO have any direct impact on Snap’s income statement? Explain.
What is the risk to common shareholders from having no voting rights?
What impact do you think the lack of voting rights will have on the initial offering price?