In 2016, there was speculation that Snap Inc., the parent company of Snapchat, was planning to have an initial public offering (IPO.) Finally, in February 2017, Snap filed the paperwork with the Securities & Exchange Commission (SEC) indicating it was going to be issuing stock soon. Snap's IPO was expected to be the most expensive tech IPO in history with a valuation as high as $25 billion.

Snap planned to issue common stock class A in this IPO; the common stock class A shares will have no voting rights. Private investors own Snap's common stock class B shares, which provide one vote per share of class B stock owned. Snap's founders own its common stock class C shares, which give the two founders ten votes per share of class C stock owned. The two founders have control of Snap through their votes.

In March 2017, the opening price was $24/share, putting the company's market capitalization at about $33 billion, about the size of Marriott and Target.

For reference:  At the time of Snap's IPO, Twitter's market capitalization was about $11 billion and Facebook's market capitalization was about $400 billion.  At the start of 2020, Twitter's market cap was about $25 billion, while Facebook's was about $607 billion. (Facebook owned Instagram in both of these time periods.)

Fun facts about Snapchat:

• Snapchat's original app name was "Picaboo."
• Mark Zuckerberg of Facebook tried to buy Snapchat for $3 billion in November 2013; the founders of Snapchat rejected that offer.
• The majority of Snapchat users are 18 to 24 years old.
• On average, daily Snapchat users visit the app more than 20 times per day, spending about 30 minutes in the app per day.

Questions

1. 1) When Snap issued the common stock class A shares, what impact did that stock issuance have on Snap's assets, liabilities, and equity?
2. 2) Did this IPO have any direct impact on Snap's income statement? Explain.
3. 3) What is the risk to common shareholders from having no voting rights?
4. 4) What is Snap's ticker symbol, what exchange is it traded on, and what is the current market price of a share?
5. 6) Would you purchase a share (or more!) of Snap stock?  Why or why not?

Answer rating: 100% (QA)

1 Snaps equity would rise as a result of the issuing of common stock class A shares but its assets and liabilities would not be directly affected The firms total assets would not immediately change as ... View the full answer