How will Snapchat’s upcoming IPO impact its assets, liabilities, and equity?

Screenshot of Snapchat snap

Screenshot of Snap with geofilter

For the past year, there has been 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 SEC indicating it was going to be issuing stock soon. Snap’s IPO is expected to be the most expensive tech IPO in history; Snap’s valuation could go as high as $25 billion.

Snap plans 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.

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 34 years old. On average, daily Snapchat users visit the app more than 18 times per day, spending 25-30 minutes in the app per day.

Questions

  1. When Snap issues these common stock class A shares, what impact will that stock issuance have on Snap’s assets, liabilities, and equity?
  2. Will this IPO have any direct impact on Snap’s income statement? Explain.
  3. What is the risk to common shareholders from having no voting rights?
  4. What impact do you think the lack of voting rights will have on the initial offering price?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

4 Responses to “How will Snapchat’s upcoming IPO impact its assets, liabilities, and equity?”

  1. Great example to use when covering stockholder’s equity in financial accounting. I love your “real-world” examples.

  2. Great story for my class tonight based upon the success of the offering today and a lot of my class have teenage children.

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