Snap arrives in London to
woo skeptical investors ahead of IPO
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[February 21, 2017]
By Simon Jessop and Sophie Sassard
LONDON
(Reuters) - Snap Inc, owner of popular messaging app Snapchat, kicked
off its first investor roadshow on Monday, looking to persuade London
money managers to back its initial public offering in the face of
concerns about its growth prospects, valuation and corporate governance.
The U.S. company, which has yet to make a profit, is targeting a
valuation of between $19.5 billion and $22.3 billion from listing on the
New York Stock Exchange, after cutting its initial target of $20
billion-$25 billion last week following investor feedback.
Investors attending Monday's event said Snap's 26-year-old Chief
Executive Evan Spiegel gave a sleek presentation. However, they were
disappointed there were no projections on the company's future revenues
or advertising share - an indication of how quickly Snap thinks it can
make money from its huge user base.
"That's the million dollar question and we won't find out for some
time," said one potential backer on his way out from the hour-long event
where Spiegel ditched his usual casual wear and wore a suit with no tie.
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Some were disappointed that it was just a question-and-answer session
with no demonstration of Snapchat's spectacles, launched in the United
States late last year, which come with a built-in camera.
One attendee, however, said it made sense not to push the hardware angle
too much at this stage.
Few U.S. firms aside from Apple have made big profits on hardware, and
camera and wearable gadget makers have much lower valuations than Snap
is seeking.
Most of the questions related to how the company plans to manage its
engagement with advertisers and users, and monetize that better,
according to people who were in the room.
Its responses won over some potential investors.
"Management did a good show, they were very convincing," said one
attendee.
Los Angeles-based Snap also plans roadshows in New York, Boston and San
Francisco. It expects to price its IPO after the U.S. market closes on
March 1, according to a confidential document seen by Reuters.
GOVERNANCE CONCERNS
Some fund managers have said they will stay away from Snap given its
decision to adopt a three class share structure - the first of its kind
- that will mean shareholders who buy in through the IPO will not have
any voting rights.
Instead Spiegel and his co-founder Bobby Murphy will have the right to
10 votes for every share, and existing investors one vote for each of
their shares.
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![](../images/022117pics/busine35.jpg)
A billboard displays the logo of Snapchat above Times Square in New
York March 12, 2015. To match Analysis SNAP-IPO/HARDWARE
REUTERS/Lucas Jackson/File Photo
![](http://archives.lincolndailynews.com/2017/Feb/21/images/ads/current/mks_lda_new_generic_2016.png)
"My
view would be investors should tread with caution here, the fact the shares will
carry no voting rights would be a major concern for me from a governance
perspective," Richard Saldanha, global equities fund manager at Aviva Investors,
said ahead of the roadshow. Aviva manages 318 billion pounds across a range of
asset classes.
Mike Fox, head of sustainable investments at Royal London Asset Management, said
the inability to vote against a company at its annual general meeting was a
"major red flag" and he would not be taking part in the IPO.
"It is worth noting that while many U.S. tech firms have delivered tremendous
returns for investors following their listing, performance of firms in this
sector has not always matched investor expectations following an IPO," he said,
also before the meeting.
Others were less worried, though.
"Snapchat offers a cocktail of hype, insane valuations, dubious fundamentals and
weak governance. However, the same was said about companies like Google and
Facebook when they listed," said Geir Lode, head of global equities at Hermes
Investment Management.
"For tech companies early in their lifecycle the weak governance structure is
fairly typical, and even with those concerns subsequent shareholder returns have
often been stellar."
With tech-savvy millennial users of Snap's products able and willing to quickly
jump ship to the next Big Thing, there were also concerns about its competitive
position versus industry rivals such as Facebook.
![](http://archives.lincolndailynews.com/2017/Feb/21/images/ads/current/napa_bch1-3108.png)
"Barriers for entry would appear low here as well, and you could see their
demographic - 18-34 year olds - easily shift to another service," Aviva
Investors' Saldanha said.
(This story corrects paragraph 2 to "targeting a valuation" instead "aims to
raise"; adds billion to show the range was $20 billion to $25 billion.)
(Reporting by Simon Jessop; Editing by Susan Fenton)
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