| NEW YORK
NEW YORK (Reuters Breakingviews) - To value Snapchat requires the whimsical sort of filters the disappearing-photo app company has made famous. All the various tallies, even at a specified share price, call on investors to cover their eyes with heart-shaped, rose-tinted lenses.
There has been plenty of hype around parent Snap's initial public offering, and new issues have been relatively scarce. During the company's brief road-show over the past week or so, news reports suggest excitement is building. That could mean it prices on Wednesday evening above the indicated $14 to $16 a share. Even within that range, though, defining a headline valuation is tricky.
Traditional methodology says the market capitalization is up to $18.5 billion. That's just the top of the price range multiplied by the number of shares to be outstanding after the IPO – 1.16 billion of them, excluding optional extra shares that could also be sold.
Snap had, however, promised nearly 240 million shares to employees as of Dec. 31, including 37 million – worth nearly $600 million – as an IPO bonus for boss Evan Spiegel. Include those and, at $16 a share, new investors are buying into a valuation of $22.3 billion. That's more than 20 percent higher. Alternatively, seen from the investors' perspective, they're being diluted by that much.
Excluding Snap's $2.3 billion of expected proceeds, the current "pre-money" value is up to $20 billion. This version of the value is comparable with previously reported private fundraising. The company's Series F round, lasting into the first half of 2016, raised $1.8 billion, bringing the total implied value of Snapchat to $17.8 billion, according to Reuters.
In that context, the IPO represents a step up. But it's not as big a jump per share as it seems, because more stock has been earmarked for employees since. Snap's prospectus suggests the Series F round was worth $15.36 a share.
That means pre-IPO investors can rest easy knowing that, near the top of the proposed price range or above, Snap's public-market debut won't be a dreaded down round. New buyers, however, shouldn't be so relaxed. Among the filters they can apply are a stretched valuation, slowing user growth and Snap's decision to sell stock that gives them no voting rights at all.