Snap shares ended the US Monday trading session higher as a report suggests the tech firm could be considering selling a stake in its business to help support its cash burn rate. The report in The Information names Apple and Tencent as potential suitors for the social media platform’s needs.
Snap shares closed 5.93% higher at $12.32. The stock is also in the green in pre-market trading.
Snap mulling stake sale?
The report details that Snap has burned through some $1.1 billion in just five quarters and that’s not including additional funds spent on acquisitions. Without a sharp increase in its stock price, or a jump in profits – soon – the US tech business needs to raise funds.
There are, of course, options. Snap could:
- Sell some stock.
- Issue more shares.
- Sell bonds.
- Or sell a stake in the business.
After examining the options, The Information concludes that selling a stake in the business is the best option open to it, right now. And, that selling a stake to an existing big tech player like Apple, Tencent or even Google, could prove the right move.
But, why does the publication think a stake sale could be in the offing?
Well, in a May 1st SEC filing, Snap detailed that it could need to raise further funds.
“To fund the withholding and remittance obligations in the future, we have and may continue to sell equity securities on behalf of our employees near the applicable settlement dates in an amount that is substantially equivalent to the number of shares of common stock that we would withhold in connection with these settlements, such that the newly issued shares should not be dilutive, or we may sell equity securities on our behalf,” Snap said in the filing.
Snap turned down previous purchase offers
While Snap has previously turned down purchase offers, including one from Facebook, things have changed.
Not only is Snap a more mature business with the benefit of better understanding, it’s also a serious contender among younger social media users. And that’s something that could appeal to many larger, even more experienced tech firms.