Snap is pricing its IPO today - here's the case for and against investing

Snapchat's parent company, Snap Inc., is set to price its initial public offering after the close on Wednesday, allowing investors to decide how much the social media company is ultimately worth.

The company is officially seeking to raise as much as $3.2 billion and pricing shares at $14 to $16. That would value it between $19.5 billion and $22 billion. However, as Business Insider on Tuesday reported, there is enough demand to drive the share price to $17 or $18, which would value the company around $25 billion.

Snap's IPO was already oversubscribed by at least $6.8 billion heading into the weekend, Business Insider reported.

About a quarter of new shares sold in the IPO could go to long-term investors who will be required to hold the stock for a year, the company said in a regulatory filing. In exchange for a guaranteed block, the big investors may agree not to dump the stock - though Snap's filing says it may waive the lockup requirement.

The roadshow in New York last month drew a standing-room-only crowd of nearly 500 people that one attendee said included "the entire hedge fund mafia."

Business Insider spoke to a handful of prospective investors and others close to the deal about the pros and cons. In most cases, these people declined to be identified because they were not permitted to speak to the press.

By now, the books have closed and the IPO investors are locked in. Everyone else will get a chance to make the same call when the stock begins trading on Thursday.

Here are the four key issues prospective investors in Snap are wrestling with, according to investors we spoke with:

• Valuation: Snap's $22 billion valuation at the top end of the IPO price range has been described as "smart" and conservative. However, Snap has no profits, and one venture-capital firm predicts it won't stop the red ink flowing until 2020.
• Slowing user growth: In the fourth quarter of 2016, Snap posted the slowest growth rate for any of the 12 quarters for which it reported numbers. It told prospective investors that the rate was partly due to problems with Android, and that it has focused on quality rather than quantity in terms of users. Still, some are "freaked out" about the slowdown.
• Monetization: Snap has only just started focusing on monetizing its users through advertising, and Goldman Sachs has forecast that Snap will increase revenues fivefold by 2018. However, some are concerned about Snap's niche demographic and the management team's ability to execute. One prospective investor said the success of the sales/advertising part of Snap's business is "TBD."
• The competition: The question of whether Snap should be concerned about Facebook - and Instagram, which Facebook owns - was an important element of the roadshow both in New York and London. On one hand, Snap has a reputation for innovation. On the other, Facebook is a $390 billion giant with deep pockets and a huge user base.

Below are the more in-depth bull and bear cases for buying a piece of Snap: