They priced their IPO today at $17 per share, raising $3.4 billion and valuing the company at $24 billion. Like venture rounds, IPOs are fundraising events, yet instead of private investors buying the shares, it’s stock market investors.
But there’s a catch. If you’re an ordinary “retail” investor, you probably won’t get to buy Snapchat at $17.
The IPO process favors large institutional investors and ultra-wealthy individuals who are on friendly terms with the banks. No one said it was democratic! (They get first dibs because they are supposedly more likely to hold onto shares longer, and there’s an effort to keep the stock price stable).
Everybody else gets to buy shares when it first starts trading, which will happen after Thursday’s opening bell. Generally, this price is higher than where they priced the offering.
That means that retail investors don’t reap all the gains in the “pop,” the term for the rise on the first day of trading. Most companies go up in their debut and that’s on purpose.
While Snapchat is incentivized to make as much as money as possible on the shares it sells, it also wants to make a good first impression on the public. Many companies aim for at least a 20% gain by the close of the first day of trading.
But for social media companies, it’s especially hard to gauge investor appetite. Facebook was flat on its first day, yet eventually saw substantial gains. Twitter, on the other hand, was off to the races, but has been volatile ever since.
Experts are mixed on what to expect with this one. Snapchat is losing gobs of money and has seen slowed user growth, but there is also a lot of pent-up demand because it’s been a few years since we’ve seen a big consumer tech IPO.
While we don’t know how public investors will make out, we do know that co-founder and CEO Evan Spiegel will be ok. This IPO will make him worth billions.