SNAP Inc., the parent company of Snapchat, went public yesterday with a valuation of approximately $33.4 billion. The Company raised $3.4 billion at $17 per share, and is now trading well above the IPO price. While SNAP has reported growing revenues ($404.5 million in 2016, up from $58.7 million in 2015), it has also reported growing net losses ($514.6 million in 2016, up from $372.9 million in 2015).
You can now purchase and own shares in SNAP, but you will not have any right to vote on any matters that may come before the shareholders of SNAP. SNAP has three classes of common stock: Class A, Class B, and Class C. Class A common stock, which are NOT entitled to vote on matters submitted to SNAP’s shareholders, are the only shares that have been sold to the public – and Class A common stock is currently the only class of stock SNAP has registered under Section 12 of the Exchange Act. This means SNAP will not be required to file proxy statements or information statements under Section 14 of the Exchange Act, unless a vote of the Class A common stock shareholders is required by applicable law.
Meanwhile, holders of SNAP’s Class B common stock are entitled to one vote per share, and holders of SNAP’s Class C common stock are entitled to ten votes per share. Holders of Class B common stock and Class C common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of SNAP. This means that Evan Spiegel, SNAP’s co-founder and Chief Executive Officer, and Robert Murphy, SNAP’s co-founder and Chief Technology Officer, through the 215,887,848 shares of Class C common stock that they collectively own (representing approximately 88.5% of the voting power of SNAP’s outstanding capital stock immediately following this offering) have the ability to control the outcome of all matters submitted to SNAP’s stockholders for approval (including the election, removal, and replacement of directors and any merger, consolidation, or sale of all or substantially all of SNAP’s assets). Further, if Mr. Spiegel’s or Mr. Murphy’s employment with SNAP is terminated, they will still continue to have the ability to exercise the same voting power.
There are a number of companies that have gone public in this sector with concentrated voting power in the hands of a select few individuals (see Twitter, Facebook and Alphabet), and there are some public companies that have classes of stock without voting rights. However, this approach of only issuing shares without voting rights to the public via an IPO is, according to SNAP’s prospectus, unique (they state that, to their knowledge, they are the only company to have done this).
Certain activists have called for limits on use of this structure. Further, the SEC has announced the agenda for an upcoming meeting on March 9th that will include a discussion on “unequal voting rights of common shares.”
Meanwhile the IPO debut and trading have been met with a surge of demand for the shares.