
In Snap IPO, New Investors to Get Zero Votes While Founders Keep Control - flinner
http://www.wsj.com/articles/in-snap-ipo-new-investors-to-get-zero-votes-while-founders-keep-control-1484568034
======
kevinpet
Relevant information:

Alphabet: GOOG (non-voting class C) closed Friday at a 2.8% discount from
GOOGL (1x voting class A)

Zillow: Z (non-voting class C) closed Friday at 1.1% discount from ZG (voting
class A).

~~~
tuna-piano
This is very interesting for me to think about. Perhaps someone smarter can
explain what this means and answer some questions.

A. On Google finance [1,2], it shows that both GOOG and GOOGL have a market
cap of $565B. There is a difference in share price, but also a difference in
the number of shares outstanding. Is this correct or a google finance mistake
/ confusing point?

B. Assuming the discount for the non-voting shares is as you mentioned it,
does this mean that shareholders value their vote for google at ~2.5x their
vote for Zillow?

C. At 2.8% of Google's market cap, that would mean Google's shareholders value
voting rights for google at $15B - a huge amount. What votes does the market
see that's worth $15B?

D. It's an often stated point that the stock market and Wall Street focus on
short term earnings, at the expense of long term results - and that the
management would be more successful in the long term if they didn't have
pressure from Wall Street. Does the discount for non-voting shares help
determine if this point is true or not?

1\.
[https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4o...](https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4onYBA)

2\.
[https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4on...](https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4onYBA)

~~~
patio11
A: Market capitalization is of an enterprise, not of a share class.

B: I think you're overthinking this a little bit.

C: GOOG and GOOGL have subtle differences between them beyond just the voting
rights. For example, GOOG != GOOGL. If you have a contract which obligates you
to give someone a share of GOOG, a share of GOOGL does not settle that
contract. There are some liquidity-related problems, as there is substantial
retail interest in Google and retail traders generally disproportionately have
access only to one share class.

One of my favorite examples for this: back in the day, there were two classes
of Chipotle, CMG and CMG.B. They were identical in every way except CMG.B had
5x the voting rights. Which traded at a discount to which? Answer: _CMG.B
routinely traded at a 10% discount._ That's either enough to shake one's faith
in the efficient markets hypothesis or it's a powerful illustration that in
the short run market microstructure matters A LOT.

(I had originally become a shareholder in the A class and started buying B
after I was aware of the mispricing. That worked out pretty well. I was far
from the only person who realized this, but it was impossible to arbitrage
away the difference profitably due to overwhelming short interest in CMG,
which meant the cost of borrowing CMG to buy CMG.B and holding them to
convergence was untenable. Eventually, some larger institutional buyers just
crowded into CMG.B and voted _to convert the B shares on a 1:1 basis to the A
shares_ , immediately cutting off their voting power and realizing massive
gains.)

------
xwowsersx
I was just thinking about Snap the other day.

Social media platforms seem to be pretty fickle. Of course there are a couple
of behemoths such as FB who don't seem to be going anywhere anytime soon, but
how does a company like Snap create a moat around their business or keep it
defensible long-term?

Please don't take my question to mean that I don't see the product/company as
compelling. I don't personally use Snap (when I did a little bit, I enjoyed
it), but I guess I just don't understand how to valuate a company like this.
Is it mostly branding wherein, somehow someway, they've managed to completely
own a certain demographic (here it seems 25 year-olds and under) and they are,
therefore, seen as a new medium/platform where brands will be putting a lot of
their ad spend?

Forgive the rant, just wondering how people think about this.

~~~
rhodysurf
Snapchat is HUGE with college aged and under, they check it nonstop and it has
become the go to social platform. It also has pretty good ideas for revenue
between custom filters that anyone can pay for (different tiers) and placing
ads in between stories when watching them. They can be skipped and are pretty
non intrusive.

I really like snapchat because it is super casual and there is no inherent
risk in throwing something goofy together, and no pressure of getting likes or
upvotes or anything.

~~~
econnors
I'm recently removed from that demo, and anecdotally can confirm this.

Facebook is where your relatives are, and Instagram is where your entire peer
group is. Snapchat is where you can share with who you want (send private
snaps to groups, and post stories to the public) while still seeing everyone's
content. All while being reasonably confident that your photos/videos aren't
being saved (or at least notified when they are, assuming somebody doesnt have
an external camera ready).

All of that, plus the ads just feel fair. They exist, appear at the "right"
times, and can easily be skipped if content isn't interesting.

I used to think snapchat was a fad. But as its evolved, I've become
increasingly confident in their ability to stay relevant.

Edit: I didn't awknowledge your "no like count" point - also spot on. Only
visible metric is views to your story, and that isn't public. Pressure to post
something "amazing" just doesn't exist like other social networks.

~~~
maverick_iceman
How about putting your phone in airplane mode and then saving a photo?

~~~
balls187
At some point, you have to take your phone off airplane mode. So you'd have to
delete the app, and never install it again.

~~~
murjinsee
...or, just sign out of Snapchat before turning airplane mode off. At least
that's how it used to work.

------
PhilWright
I have to say it feels like the founders want to have their cake and eat it.
They want the money that comes from an IPO but they don't want to give up any
control. Facebook is the same, Zuckerberg has the majority of the voting
shares but a lot less than 50% of actual shareholding. This seems to be
becoming increasing common with tech start ups.

If you want others to invest and take on a financial risk then they should get
an equal and fair voting share. If I was the stock exchange I would ban this
kind of crap.

~~~
smallgovt
It's a marketplace. There's no "should" to transactions.

As a buyer, you have no right to dictate what gets sold. There "should" be no
imperative that the seller is beholden to.

If the business wants to sell shares with no voting rights, they'll do it. If
nobody buys, then they'll change it.

~~~
edblarney
"As a buyer, you have no right to dictate what gets sold. "

Not quite.

This is why there are tons of regulations (most of them good) around being a
publicly traded company.

~~~
bko
I don't see what the upside is to preventing founders to sell non-voting
shares to the public. There are always other ways to raise capital with
negotiated terms. The great thing about publicly traded companies is that it
allows anyone to invest in a low cost standardized and liquid fashion. Onerous
restrictions on the IPO market will just discourage IPOs in favor of other
methods of raising capital where the gains are not available to smaller
investors

~~~
whyileft
Because a shares without a vote cannot protect themselves from being diluted
or wildly uneven dividends and buybacks.

It has happened in the past.

~~~
stale2002
Then don't buy those shares.

~~~
whyileft
Can you explain why it will be different this time around to have an
unregulated public market that lead to the great depression? I ask because
your comment would apply to any regulation in the public markets. Can you at
least explain why this specific situation would not be problematic?

------
siavosh
Curious if this is part of a larger trend in IPOs across industries? And if
something is driving it other than unique founder celebrity status'.

And if I were to make a bit of a leap, if this is an anti-democratic trend
we're witnessing.

~~~
lisper
Nope, it's part of a trend that began with the Google IPO. Larry and Sergey
kept control, but investors made money so they didn't care. Then Zuck tried
the same thing, and it was a bit of rocky start, but investors still made
money eventually. It will keep going until there is a disastrous IPO where
founders keep control and investors lose their shirts and realize they have no
recourse. Then it will stop.

~~~
Animats
A few publicly held companies with multiple classes of stock have tanked.
Zynga (remember Farmville?) is one. Their shareholders are suing the directors
for insider trading; the insiders sold around $12 and the stock then crashed
to around $3. Groupon is another. Their stock dropped over 75%. Management
lost a shareholder lawsuit and paid out $45 million to shareholders.

If a company goes into any form of bankruptcy, the insider control goes away.
That's why Ford Motor Company didn't go bankrupt like GM and Chrysler - the
Ford family would lose control. So their financial management is more
conservative than the other auto companies.

------
pfarnsworth
A stock with no voting power and no dividends is entirely worthless. You're
basically just giving your money away to the company.

It's akin to buying shares in The Green Bay Packers, where fans can buy
ceremonial shares of the Packers, with absolutely no value.

I don't understand why you would buy a share like this, besides relying on the
Greater Fool theory to make money. It's essentially like buying a collectible
like a baseball card and hoping that you can sell it to some other fool at a
later time.

~~~
irq11
I don't know why people are voting your comment down. You're exactly right, in
terms of any conventional stock analysis: if there's no dividend and no
control, you're not getting a share of the business in any real sense.

Shares like this have value only in the bitcoin sense: they're valuable solely
because people think they're valuable.

~~~
eberkund
>Shares like this have value only in the bitcoin sense: they're valuable
solely because people think they're valuable.

That's not true, you have ownership in the company proportional to the amount
of stock you own. Just like any other stock. If the company is bought out or
decides to give out dividends in the future you stand to make money. That is
why the stock value tends to track the company's ups and downs. Comparing a
stock to bitcoin is ludicrous.

~~~
lhopki01
And if the buy out is just of the voting rights stocks? There's no need to buy
out non voting rights stocks if you want control. Give out dividends out of
the goodness of their hearts?

------
karpodiem
Snapchat is the next Twitter (wrt financial performance)

~~~
jayjay71
What makes you say that?

~~~
edblarney
It's not an unreasonable comment.

Snapchat is _mostly_ a texting app. Yes - their value prop is around 'sharing
moments' and they do it well. Also - they have other ancilliary offers.

And yes - they are the kings of college aged-students, and the 'cool thing'
for now.

But - texting is to some extent a commodity, and 'cool brands' fade. Facebook
used to be cool - then they turned into a utility. Twitter was cool, and now
it's at utility stage as well.

And - do they really have the capacity to grow to 1.5 billion people? Facebook
eventually had 'your parents'. Snapchat will not. Twitter has tons of regular
folk. Snapchat probably will not. So there's a limit to their growth.

The question is - can Snapchat exist as a utility when the buzz dies down?
Will they anchor themselves as 'the' texting platform, do they have that kind
of incumbency?

Snapchat is going nowhere anytime soon, and it's entirely feasible they stay
relevant for a long time.

But - the valuation is pretty dam high.

In order to justify a 17B valuation it means you have to produce 17B in
_profits_ at todays dollar value. That's a lot of money. It means 1 B in
profits in the bank or back to shareholders for 17 years :).

So it's a pretty big valuation to live up to, even if they are fairly
successful.

But they are definitely cashing in at exactly the right moment. They hype is
at a nadir. They can't get any cooler, though they could break through to
other demographics/countries/markets etc which would keep investors happy.

~~~
bookmarkacc
I don't think nadir is the right word here. Perhaps zenith

------
maverick_iceman
Non-paywalled version: [http://www.theaustralian.com.au/business/wall-street-
journal...](http://www.theaustralian.com.au/business/wall-street-journal/in-
snap-ipo-new-investors-to-get-zero-votes-while-founders-keep-control/news-
story/75ee361a68f45369ce3f8644a39ac35c)

