Snapchat – Reality check

Snapchat is valued at $500m not $2bn-$3bn

• A look at the regulatory filings strongly suggests that the current valuation of Snapchat is $500m not the $2bn-$3bn that is being thrown around.
• The event of raising capital at Snapchat has led to an updated certificate of incorporation being filed.
• Snapchat is affecting a series C round and is issuing 1.6m shares at $34.09.
• Looking through the filing other facts are apparent.
• Firstly, that the company is authorised to issue 98.07m shares of which 60.0m are common equity.
• Secondly, that the company has carried out three rounds to date: a series A preferred, series A1 and a series B.
• I am making two assumptions:
  • First: That these three rounds represent all of the equity issued to date.
  • Second:  That there are no options in issue. This is a big one and could lift my estimate of the share count by 20% easily.
• Taking all of these facts together it is easy to see how people get confused.
• Commentators have taken the series C round price of $34.09 and multiplied it by the total number of shares that the company is authorised to issue.
• This gives $3bn for all the authorised shares and $2bn for just the common equity.
• The key here is that authorised shares are not necessarily the number of shares that have been issued.
• A company must seek permission from the shareholders to issue shares (the authorised share count) before actually issuing them.
• They are not part of the capital of the company until they have actually been issued and paid for.
• Hence, the value of Snapchat is in fact the price per share of series C ($34.09) multiplied by the number of shares that have been issued.
• When one maps out the four rounds of fund raising, the numbers start to make sense. (see here for more details).
• By my count shares in issue are 14,696,232 pre series C and 16,296,232 after series C.
• This gives a pre money valuation of $500m and a post money valuation of $555m.
• This is a much more reasonable valuation and is much closer to my own valuation of Snapchat of around $300m.
• I suspect that the series C will also put an end to rumours of acquisition as the company should have enough money to begin the critical task of monetisation.
• By my reckoning Coatue Management will end up with a 9.8% stake in Snapchat.
• To see a return on this investment Snapchat will need to start showing some revenues as a $300m valuation for a company with 60m users (Q4 13E) and no revenues is pretty generous.