Snap's proposed valuation has raised some eyebrows on Wall Street, as people close to the company had for months floated the idea that it would be valued at up to $25 billion.
One person close to the deal, with a vested interested in seeing it succeed, told Business Insider that Snap is playing it safe with the intention of going higher as soon as demand merits. Conversely, asking for the full $25 billion and being forced to roll it back if investor demand isn't high enough would be a worse outcome that taints the company's trading debut.
Though the company said it was seeking to price shares at $14 to $16, this person said the only acceptable price, in reality, will be $16 per share or more. This person expects Snap's order book to be oversubscribed, meaning there will be demand for more shares than it is selling.
A hedge fund manager who attended the New York meeting told Business Insider "the bankers are being smart about the pricing."
"You could make the point it's too low, but the bankers are being smart enough about not having another Facebook," he said, referring to the famous plunge that Facebook's stock took in the months after its IPO before shares eventually recovered. "I think they’re pricing it at a very reasonable amount. Even if you’re skeptic, the valuation is coming out at a level where you almost have to look at it."
"If you're bullish, what you want to spin is at the end of day is that Facebook's market cap is $385 billion. Snapchat is coming about $20 billion enterprise value. When you think of enterprise value to opportunity set, it's a fairly palatable valuation ... A similar way to look at it as to look at Twitter as a comparison, with a $12 billion market cap. They have a user base problem, monetization problem and they’re still worth $12 billion. The premium that Snapchat is coming out as versus Twitter isn't that bad, for what I’d argue is a much better program."