February 24, 2017 / 6:02 PM / 7 months ago

Fidelity, T. Rowe poised for gains on Snap IPO

A sign marks a Fidelity Investments office in Boston, Massachusetts, U.S. September 21, 2016. REUTERS/Brian Snyder/File Photo

BOSTON (Reuters) - Mutual funds run by Fidelity Investments and T. Rowe Price Group Inc (TROW.O) could be poised for a quick win on the upcoming public debut of Snap Inc (SNAP.N).

Both fund companies made private investments just last year in the owner of the popular messaging app Snapchat, with bets that could soar in value if Snap’s expected March 1 initial public offering is a success. Snap’s planned $3.2 billion IPO is oversubscribed, market sources told IFR on Friday.

That demand could indicate Snap shares would trade above the current estimated IPO range of $14 to $16 a share. T. Rowe’s Institutional Large-Cap Growth Fund this week disclosed that it valued its 1.29 million Snap shares at $15.30 apiece, as of Dec. 31.

To be sure, Snap is a largely unproven company with only a five-year track record. Last year, Snap’s operating activities burned through $611.2 million in cash, up from $307 million in 2015.

Revenue growth, however, offers some promise to investors, surging last year to $404.5 million from $58.7 million in 2015.

Four of Fidelity’s most popular stock funds have invested about $162 million in Snap, U.S. regulatory filings show. Fidelity’s Contrafund (FCNTX.O) took a $58 million stake in Snap in February 2016. That investment represents only 0.06 percent of the massive fund’s $105 billion in net assets.

The logo of T. Rowe Price Group is pictured at its office in Tokyo, Japan, January 13, 2017. REUTERS/Toru Hanai

Over the past few years, Fidelity has become one of the largest investors in pre-IPO companies. But not all of these companies become publicly traded as quickly as Snap will after a Fidelity initial investment. Contrafund’s first investment in file sharing company Dropbox Inc, for example, happened about 5 years ago. Dropbox remains a private company.

Snap’s IPO roadshow came to Fidelity’s hometown of Boston on Thursday. Snap Chief Strategy Officer Imran Khan fielded most of the questions at the Boston event. Snap Chief Executive Evan Spiegel did not take part in a one hour question-and-answer session at the Four Seasons Hotel. Fidelity declined to say if Snap executives met with analysts and portfolio managers at the mutual fund company’s headquarters.

FILE PHOTO: The logo of messaging app Snapchat is seen at a booth at TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. To match Analysis SNAP-IPO/HARDWARE REUTERS/Lucy Nicholson/File Photo

Investors have a lot to consider before Snap begins trading next week.

New user growth slowed in the second half of 2016, and just this week Facebook’s WhatsApp introduced a disappearing photo-messaging service similar to Snapchat‘s. Last year, Facebook introduced disappearing videos to its Instagram platform.

Snap is targeting a total market valuation of more than $22 billion, much smaller than rivals, such as Facebook’s $389 billion. Khan said that is one reason why Snap’s founders want control of the company’s voting stock, according to people who attended the Boston event.

Khan said not having control could hurt Snap’s future.

Reporting By Tim McLaughlin; Editing by Meredith Mazzilli

Our Standards:The Thomson Reuters Trust Principles.
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