By Mark Brighouse, Chief Investment Officer
06 March, 2017
What does US$24 billion buy you on the stock market these days? Based on Snap Inc.'s upcoming initial public offering, $24b buys you a company that specialises in disappearing photos, disappearing cash, and most concerning: disappearing shareholder rights.
Snap Inc. is the company behind photo messaging app Snapchat — set up for users to share photos that are self-deleting.
Snap has never made a profit; the company is burning through cash at a rate of around $2 million per day. For every $1 it makes, it spends around $1.14 in cash. The company's revenue is improving as user numbers increase but costs are rising even faster. In 2015, the company lost $372 million; in 2016 it was up to $514 million.
We acknowledge that some companies with a poor profit history turn this around and become great investments — Amazon.com is a fine example of this. What we really object to in this float are Snap's nonexistent shareholder rights. This is the first time in US history that a company has listed shares with no voting rights. When we say no voting rights we mean none; no single right to influence the future direction of the company in any way.
Founders Evan Spiegel and Bobby Murphy will maintain total control of the company through a unique share class structure. This gives them control over "all matters submitted to our stockholders".
The ability of all shareholders to have some influence over the executives and direction of a firm is fundamental in ensuring that companies are run for the interests of all owners, not just a select few. Snap has disregarded this basic tenet of how public companies have been, and in our view, should be run.
This is a dark day for corporate governance. We will not be buying Snap shares.