Decoding the smooth IPO of Snap, Snapchat’s parent company

Snapchat’s parent company, Snap, raised $3.4 billion in its IPO without exercising the ‘green shoe’ option, which is an extra allotment that allows underwriters to buy up to 15 percent of company shares at the offering price. The company sold 200 million shares at $17 each for $3.4 billion. This is considered to be a smooth IPO.

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According to a Livemint report, this represents the largest IPO of a US-based tech company since Facebook went public in 2012. Co-founders Evan Spiegel and Bobby Murphy are getting $272 million apiece. An explanation for the 200 million shares would be that VC firms Benchmark and Lightspeed offloaded nearly 29 million shares for $340 million and $146 million respectively and Snap Chairman Michael Lynton sold 54,907 shares for $1 million. The 200 million shares sold will have a fraction that will be traded soon. A quarter of the 200 million shares have been locked up by Snap for about a year.

Snap, in contrast to other platforms like Facebook and Twitter, didn’t really define its business plans from the start. For instance, Facebook promoted social ads and Twitter promoted similar tweets. Time and again, CEO Evan Spiegel insists that it is a camera company. Leaving that aside, in terms of IPO pricing, Snap can’t be compared to Facebook, which was valued at $81 billion at IPO pricing in May 2012.

As of March 1 2017, Snap is worth just under $20 billion. The company however can be valued at $24 billion after taking into consideration all the bonuses and rewards that will be given to its employees. Snap could be using the $2.3 billion that it is keeping for acquiring new technology and hires. Nothing has been mentioned about how the money will be used, though it is speculated to be used to pay off around $3 billion for Google’s and Amazon’s cloud services. Just before the IPO, Snap had signed a $2 billion contract with Google for its cloud services. Though the services provided are unknown, Google Cloud is very important to Snap’s operations. Snap could be using Cloud Storage, App Engine, Compute Engine, and Big Query, all of which are Google’s cloud services.