Snap’s Rise and Fall: How a Big,
Splashy IPO Prompted the
Doubters to Keep Mum
Bankers and investors in Snap’s IPO didn’t want to risk losing a piece of
the potentially blockbuster deal
Eight months after Snap’s IPO, after a third weak quarterly earnings report in a row, its shares are close
to 25% below their offering price. PHOTO: ASSOCIATED PRESS; ILLUSTRATION: WSJ
Maureen Farrell and
Nov. 9, 2017 12:39 pm ET
Snap Inc. SNAP +3.74% kicked off the planning for its hotly anticipated initial public
offering last year with a brief address from its co-founder, Evan Spiegel,
accompanied by a series of nonnegotiable conditions.
Snap wouldn’t provide financial guidance on expected earnings. It would bill itself as
a camera company. And it would sell shares with no voting rights, leaving the cofounders with near-total control of the company.
Present at the October 2016 meeting near Snap’s main office in Venice, Calif., were
underwriters from about a half dozen of Wall Street’s largest firms, who had
gathered in anticipation of the biggest U.S. tech initial public offering in years. Snap’s
presentation damped some bankers’ enthusiasm. But it didn’t stop them from
Interviews with dozens of people close to Snap’s listing, including bankers,
investors, analysts and current and former Snap employees, show that many had
concerns at the time, especially about the growth prospects for the maker of the
disappearing message app Snapchat. But, in a fever for a big listing—and with about
$98 million in fees at stake—they allowed Snap to set the terms. The shares listed
on March 2 and soared 44% on the first day of trading.
Eight months later, after a third weak quarterly earnings report in a row, Snap
shares are wallowing more than 25% below their offering price.
On Tuesday, Snap reported its quarterly loss had more than tripled, sending shares
down 18% over the following two days. Its previous two quarterly reports had also
made clear revenue wasn’t meeting expectations, user growth was slowing amid
fierce competition from Facebook Inc. and a high-profile product launch had fizzled.
Snap's share price has tumbled as user and revenue growth have weakened.
Investors and bankers had hoped Snap would thrive as a public company and
awaken what had been a largely dormant tech IPO market. Instead, the company’s
struggles have further strengthened the impulse for highly valued startups to opt for
After the earnings report on Tuesday, Mr. Spiegel said in a conference call with
analysts that Snap would overhaul the Snapchat app. He also acknowledged he
misjudged demand for Spectacles, the video-recording sunglasses that had a buzzy
launch a year ago. Snap said it recorded $39.9 million in charges in the quarter,
primarily because of excess Spectacles inventory.
On Wednesday, Snap disclosed that Chinese internet giant Tencent Holdings Ltd.
had recently bought a 12% stake, adding to an earlier stake and becoming one of its
Mr. Spiegel has been upbeat about the company and its IPO recently, saying that
going public was the right thing for Snap at the time. He also said he has learned
“I think one of the things I did underestimate was how much more important
communication becomes,” he said last month during the Vanity Fair New
Establishment Summit in Beverly Hills. “When you go public, you need to explain to
a huge new investor base how your business works.”
Morgan Stanley tech banker Michael Grimes, shown at a WSJ conference in 2016, worked on Snap’s
IPO. PHOTO: NIKKI RITCHER FOR THE WALL STREET JOURNAL
Competition was fierce for the Snap deal. Morgan Stanley won the lead underwriting
job—tech banker Michael Grimes rented an apartment near Snap’s main office.
Goldman Sachs Group Inc. also secured a top spot, along with J.P. Morgan Chase &
Co., Deutsche Bank AG , Barclays PLC, Credit Suisse Group AG and Allen & Co.
Stock-underwriting activity was in the doldrums in 2016—money raised by U.S.
IPOs was the lowest since 2003, according to Dealogic—and banks were hungry for
fees. The last high-profile technology offering had been Chinese e-commerce
giant Alibaba Group Holding Ltd. ’s U.S. listing in 2014.
Many of the fastest-growing tech startups are remaining unlisted, putting them out
of reach for the average investor. At least 160 venture-backed companies in the
private market are valued at more than $1 billion, compared with 45 at the start of
2014, according to Dow Jones VentureSource.
Investors viewed Snap’s offering as a chance to get into a young and promising
company. Founded in 2012, Snapchat was one of the most popular apps in the U.S.;
it now has about 178 million global daily users. It makes money from advertisers
who pay to reach its coveted audience of young people.
Growing PainsSnap's quarterly change in daily activeusersTHE WALL STREET JOURNALSource: the company
In 2013, the company rebuffed an acquisition offer from Facebook worth about $3
billion, eventually turning the giant into a potentially lethal competitor. In August
2016, Facebook launched Instagram Stories, a product similar to a Snapchat feature
that lets users create a series of videos and images that disappear after 24 hours.
The product now has more than 300 million daily active users, surpassing Snap.
The Facebook launch coincided with a slowdown in Snap’s user growth. The IPO
filing said user growth had slipped to 7% in 2016’s third quarter, compared with
17% in the second quarter. On Tuesday, Snap reported user growth in the most
recent quarter had fallen to 2.9%.
Ahead of the IPO, concerns had been growing about the lack of information on how
Snap would defend against competition.
Sean Stiefel, manager of the Navy Capital Opportunities Fund, was concerned before the IPO about
Snap’s competition but didn’t want to miss out on the investment. PHOTO: MICHAEL BUCHER/THE
WALL STREET JOURNAL
At a company all-hands meeting in January, a Snap employee said the company
would reach a saturation point in the U.S., according to a person present at the
gathering in an airplane hangar in Santa Monica, Calif. The employee wanted to
know about the company’s growth strategy overseas, since Facebook was imitating
many of Snap’s features and signing up droves of users in Asia and India, the person
Mr. Spiegel’s response: People feel more free to express themselves on networks of
close friends, according to a person familiar with the meeting.
The CEO has dismissed ideas that rely heavily on data, according to people who have
worked with him. He prefers to study the experience of users for cues on revisions
and new features, some of the people said.
On Feb. 2, Snap filed with the Securities and Exchange Commission. In its
paperwork, the company listed Instagram Stories as a potential risk to its business.
It said revenue was $404.5 million in 2016, up nearly sevenfold from a year earlier,
but said its growth in daily active users was slowing.
Three weeks later, several hundred analysts and portfolio managers crowded into a
ballroom of New York City’s Mandarin Oriental hotel to hear executives pitch the
IPO and answer questions. Mr. Grimes, the Morgan Stanley banker, introduced Mr.
Spiegel as a “once-in-a-generation” founder, according to people present.
Snap IPO: Focus on the Founders'
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Snap IPO: Focus on the Founders' Control
From the archives, March 1, 2017: When Snap Inc. goes public, Snapchat co-founders Evan Spiegel and Bobby Murphy will retain control of
more than 90% of the company’s voting rights. WSJ’s Shelby Holliday looks at how Snap’s rare share structure stacks up against other tech
Some people who attended the lunch said they wanted to hear from Mr. Spiegel on
many of their pressing business questions, including the company’s plans for
generating advertising revenue, but that chief strategy officer Imran Khan generally
Investors said Mr. Spiegel focused on his vision instead of the numbers, and that
their questions were answered with generalities.
Sean Stiefel, manager of the Navy Capital Opportunities Fund, was among those at
the Mandarin hotel. Mr. Stiefel said he had some concerns about the company—top
of his mind was that when he went home at night he found himself checking too
many social-media platforms, including Facebook, Instagram, Twitter and LinkedIn,
as well as Snapchat. He said he worried about how Snap would be able to keep up.
Still, Mr. Stiefel didn’t want to miss out on the investment. When he called his
Goldman Sachs banker to tell him he wanted to buy shares in the deal, he added
half-jokingly that his order was good “for the first two price-range increases”—
expecting the offering to have so much demand that the initial price would ratchet
“People love the space, and it isn’t like there’s a new entrant every quarter or every
year even,” he said in February.
A major concern was Snap’s plan to sell shares that carried no voting rights,
according to investors and bankers who attended roadshow events. Mr. Spiegel and
co-founder Bobby Murphy would retain roughly 90% of voting control once the
company went public.
Struggling for Growth
Snap, which listed its shares in March, hasn't met expectations on revenue, and its losses have
Source: the company
One banker involved in the IPO said he thought the lack of voting shares and other
decisions could imperil the company’s standing with investors, possibly hurting its
stock price. But he said he didn’t articulate that to Snap’s executives for fear of
jeopardizing his spot on the prized deal.
The lack of voting shares translates to an “unaccountable management team,”
Michael Pachter, an analyst who covers the company for Wedbush Securities, said
last month. “If investors don’t like the direction a company is taking, they can’t do
anything about it.”
Index provider S&P Dow Jones Indices said July 31 it would bar newcomers with
multiple classes of shares from some of its indexes over concerns about investors
getting limited or no voting rights. That means Snap won’t be eligible to be included
in the benchmark S&P 500, which a company of its market cap could have expected
to be included in as soon as 12 months after its IPO if it reported steady profits. That
means its stock price won’t benefit from the forced buying from the popular index
funds that track it.
Some advisers to Snap ahead of the listing also privately questioned the company’s
decision to describe itself in the IPO filing as a camera company, versus a socialmedia company. They said that might imply to investors that the company was
going to focus on hardware, such as Spectacles, rather than the Snapchat app.
One of Snap’s offices in Venice, Calif. PHOTO: GEORGIA WELLS/THE WALL STREET JOURNAL
Snap priced the shares at $17 apiece. On March 2, Snap’s first day of trading, the
stock closed at $24.48, the biggest one-day pop for a U.S.-listed IPO that raised at
least $1 billion in more than two years, according to Dealogic.
Shares remained buoyant until May. Snap’s first quarterly report showed user
growth slowed to 5%, sending shares tumbling 20%. By early July, shares had fallen
below the IPO price and have never recovered, including two big swoons when S&P
faulted the multiple classes of shares and when Snap released a second quarterly
report of disappointing earnings in August.
“I can’t remember another time when a company gave as little direction as Snap
did,” said Sam Kemp, senior internet research analyst at Piper Jaffray & Co., which
wasn’t involved in the IPO. He initiated coverage on Snap in March at $23 a share,
but has since lowered his price target to $12.50.
Mr. Kemp said he covers other tech companies that give limited guidance, such as
Facebook and Amazon.com Inc. Facebook, for example, gives regular guidance on
operating and capital expenses rather than annual guidance for revenue and profit,
while Amazon releases its outlook for revenue and operating income, but doesn’t
forecast earnings per share.
Snap’s chief strategy officer Imran Khan at an advertising conference in New York last
year. PHOTO: SLAVEN VLASIC/GETTY IMAGES
But those companies “are extremely established” and have demonstrated their
ability to make money, he said. “Snap came in and immediately…tried to be one of
those companies without having a defined track record.”
In 2012, Facebook’s stock closed below its IPO price of $38 a share on its second day
of trading and failed to return to that level for more than a year. Early on, the social
network faced questions about the utility of its ads, as well as privacy issues and
concerns about its strategy in mobile devices. But the company went on to dominate
the online advertising market along with Google parent Alphabet Inc., with its
growing market share driving its stock higher. These days, the stock trades at
In late September, Morgan Stanley CEO James Gorman said he would encourage
investors to focus more on Snap’s business than its stock price. “Stop worrying
about how the price trades for a few weeks,” he said at The Wall Street Journal’s
Future of Finance event. Instead, he said he focuses on the long term. What the
company has done so far is “extraordinary,” he said.
Write to Corrie Driebusch at firstname.lastname@example.org, Maureen Farrell
at email@example.com and Georgia Wells at Georgia.Wells@wsj.com
Fintech Startups Seek to Shake Up
Remittance startups aim to reduce time, cost required to send money
internationally by using the latest technology
A Western Union symbol in Budapest. Western Union says many of its customers still prefer to use cash,
and it would just be too costly for the startups to develop an on-the-ground network that could
compete. PHOTO: OMAR MARQUES / SOPA IMAGES/ZUMA PRESS
December 19, 2017
MUMBAI—The race is on to become the top global app for international money
Fintech startups including WorldRemit Ltd., TransferWise Ltd. and Remitly Inc. are
pulling ahead of the pack of the dozens of companies trying to disrupt the
remittance industry, using the latest technology to send money internationally.
More than $600 billion is remitted world-wide every year, mostly by migrant
workers from places like India, Mexico and the Philippines, who have traditionally
had to deal with long lines and high fees to send money home.
The startups are competing to build trust in their brands and the best transfer
technology, using everything from digital wallets to Bitcoin in hopes of becoming
the Uber or Airbnb of the remittance industry.
As new players step into the market, the cost of sending money across borders is coming
Source: World Bank
WorldRemit is using fintech to take business from the traditional money-transfer
giants like Western Union Co. WU +1.16% and MoneyGram International Inc., MGI 3.24%
said Alix Murphy, director of mobile partnerships at the London company.
“These are companies that have been operating in the same way for the last 30
years,” she said.
The remittance market has long been a fragmented space, with banks, transfer
specialists such as Western Union, and an informal and often illegal money-transfer
system known as hawala vying for thin slices of the remittance pie. Despite the
competition, sending money can often be expensive and time consuming.
Differing regulations and bank procedures mean sending through banks often takes
days, and fees can be confusing and high.
Money-transfer specialists are generally faster but more expensive, and you often
have to visit one of their outlets, which in places like Hong Kong often have long
lines. Meanwhile, many of the people who depend on remittances often have no
accounts to receive funds.
The remittance startups say they are trying to change that by slashing the number of
middlemen involved to make cash connections.
“How is it that it’s free to send an email and it costs to send money?” said Kristo
Käärmann, co-founder and chief executive of London-based TransferWise, which
sends almost $2 billion a month. “Why does it have to cost much at all, when we’re
moving bits and bytes around?”
Sending money using the TransferWise app takes minutes—users enter their
recipient’s account details and then pay by card or bank transfer.
The company has bank accounts in multiple countries, so it simply takes the money
into its account in the sending country and disburses it from its account in the
receiving country, skirting around the traditional transfer system, which often
requires rubber stamps from central banks and other authorities along the way.
The differences in fees can be significant. Sending via banks alone costs about 11%
of the money transferred on average; sending through a traditional money-transfer
agent costs around 6%, while sending it via phone using mobile operators costs
around 3%, according to the latest World Bank survey of remittance costs.
Each company plans to go global, but many have strengths in the most heavily used
remittance routes. Seattle-based Remitly is doing well in U.S.-to-Philippines
remittances, for example, Singapore-based InstaReM is strong in Australia to India
and TransferWise, the U.K. to Europe.
There are signs of a shakeout, and front runners are emerging.
TransferWise serves millions of people and has already grown into a unicorn with a
valuation of $1.6 billion, after raising $280 million in a tough environment last
month. WorldRemit earlier this month said it had raised a total of more than $220
million but wouldn’t disclose its valuation.
Remitly has just raised $115 million at an undisclosed valuation.
“We’re really excited about using it to completely transform this industry,” said Matt
Oppenheimer, chief executive and co-founder of the company, which counts Jeff
Bezos as one of its investors and sends around $2 billion a year.
Banks and transfer agents say they are doing more online and through phones as
well and the market is large enough to allow lots of new players.
Western Union says it isn’t worried about the disruption. Many of its customers still
prefer to use cash, and it would just be too costly for the startups to develop an onthe-ground network that could compete. People want to use a brand they are
familiar with, said Khalid Fellahi, senior vice president of Western Union.
“This is hard-earned money” they are sending home, he said. “There is a very high
rating on trust.”
Still, traditional money-transfer companies are also trying to stay on top of the latest
technology. Western Union launched a digital division in San Francisco that is
setting up partnerships with companies like Chinese messaging app WeChat and
Facebook messenger. It invested in the Digital Currency Group, an investment firm
focused on Bitcoin and Blockchain startups.
Ant Financial Services and MoneyGram are hoping to merge, providing the Chinese
fintech firm with access to an on-the-ground global agent network of 350,000
outlets in more than 200 countries and territories.
In response, the remittance startups are trying to deepen their ties to their
customers. San Francisco-based Xoom now allows its users to top up prepaid phone
balances and pay bills in other countries.
“We can present the balance they owe, or perhaps that their mother owes on her
energy bill,” said Julian King, general manager at Xoom. “She no longer has to go out
and take a bus, often in hot sun, to go wait in line and pay a bill.”
Some of the startups are already using Bitcoin and Blockchain to cut time and cost.
They don’t give Bitcoin ...
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