Snapchat is valued at $500m not $2bn-$3bn
A look at the regulatory filing 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.