With the help of booming equity markets and investor hopes of buying into The Next Facebook™ at a relatively early stage, Snap Inc. priced its long-awaited IPO above its initial price range. And judging by reported demand for the 200 million shares Snap is selling through its offering, that same euphoria could lead shares to pop when they begin trading on Thursday morning.
But this doesn't guarantee that Snap will continue flying higher in the days to come. The red flags raised by Snap's IPO filing did much to increase the ranks of those worried about its ability to fend off Facebook (FB) , appeal to more international and older users and post healthy profit margins in future years. And until Snap delivers numbers that refute at least some of these concerns, shares are likely in volatile ride.
On Wednesday afternoon, Snap priced its IPO at $17, above an initial $14 to $16 range. That means the company is raising $3.4 billion through its offering -- given its red ink and competitive pressures, that cash could come in handy -- and could raise up to $510 million more through an overallotment option that gives IPO underwriters the chance to buy an extra 30 million shares.
Based on an official share count of 1.16 billion, the IPO pricing gives Snap a $19.7 billion valuation. But after factoring accounting for the many stock options and restricted stock units (RSUs) set to vest, Snap is assigned a $23.6 billion valuation.
Based on 2016 revenue of $404 million, Snap is going public at a valuation of 58 times trailing sales. Assuming the company hits a reported 2017 sales target of $1 billion -- the slowdown seen in the company's sales growth in the fourth quarter suggests this isn't a given -- it's trading at nearly 24 times forward sales.
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