Snap, the parent company of Snapchat, plans to launch a $750 million private-placement debt offering, along with the option for buyers to purchase up to an additional $112.5 million of the convertible securities.
Per the boilerplate text in the announcement Thursday, Snap said it plans to use cash from the offering for “general corporate purposes,” including working capital. In addition, the company “may also use a portion of the net proceeds” for acquisitions or for stock buybacks.
Snap ended Q1 with $901.3 million in cash on hand and $903.3 million in net debt (in the form of convertible senior notes).
The announcement of the debt financing plans come after Snap posted strong first quarter 2020 results. Snapchat’s average daily active users increased by 11 million to 229 million in the period, up 20% year-over-year. Snap also beat Wall Street revenue expectations, with Q1 sales up 44% from the year prior, and slightly narrowed its net loss.
Snap’s stock zoomed up 37% Wednesday after it reported Q1 results, closing at a two-month high of $17.01 per share. The company’s ad revenues are decelerating amid the economic chaos caused by the COVID-19 pandemic: Snap said it had 58% year-over-year revenue growth for January/February, which fell to 25% in March — and was 15% in the first few weeks of the second quarter (through April 19). But Wall Street analysts remained upbeat on Snap’s long-term prospects.
“While we continue to believe the path back for media will take longer than investors are expecting, we think that the [Snap] growth rates seen pre-COVID are the best barometer we can point to for the potential of the business,” Michael Levine, Pivotal Research Group’s senior research analyst for internet and media wrote in a note April 22. Notably, Snap said more than 50% of ad sales are to direct-response marketers – “proof that the strategy is working,” per Levine.
In announcing the debt financing plans, Snap said the securities will mature on May 1, 2025, unless repurchased, redeemed, or converted before then. Snap said it will choose to settle the notes in cash; in shares of Snap’s Class A common stock; or a combination of cash and shares of Snap’s Class A common stock.
(Pictured above: Snap CEO and co-founder Evan Spiegel)