Snapchat’s IPO is coming in the first half of 2017, in an offering that could value the hot social networking app at $25 billion.
The company, which recently rebranded itself as Snap and announced plans to branch into hardware, is set to be the tech industry’s biggest Wall Street debut in years. The IPO market has been somewhat dormant of late, and it’s become fashionable among some tech companies to resist going public.
So why is Snapchat going public?
A source familiar with the matter tells Business Insider the company wants to tap the public markets for three main reasons:
- Advertising — Snapchat is increasingly looking to strike big-dollar advertising deals with major brand marketers like automobile and packaged consumer goods companies. Being perceived as an established, public company, rather than just a startup that might not be around next year, helps win trust and opens wallets on Madison Avenue.
- Talent — In the hyper competitive hunt for engineering talent and product design talent, the ability to dangle stock options that are liquid and can be readily cashed out on the public market is a crucial weapon. Pre-IPO stock is a great incentive in the early years, but as a company gets bigger it needs to give employees a way to cash out.
- Competition — In the five years since it was founded, Snapchat has emerged as one of the most popular social networking apps, particularly for the younger, millennial generation. That popularity means Snapchat is increasingly going up against well-capitalised players like Facebook and Google. The funding and the stock currency Snap gets from a listing will be a big help.
Going public has its downsides too, of course. Competitors learn more information about your business and management must run the business to please Wall Street every three months.
Facebook famously resisted going public for years and finally relented in 2012 because it had more than 500 shareholders and would have been required to file reports with the SEC anyway. And some people wonder whether Twitter, whose stock has been decimated, would have been better off staying private.
Snapchat seems to have concluded that going public and joining the big leagues is worth the trade-offs.