Snap, the money-losing parent company of Snapchat, is issuing $1 billion in convertible debt for working capital and future acquisitions, CNBC reported Tuesday (Aug. 6).
CEO Evan Spiegel outlined profitability goals for 2019 in a memo last year and as of June 30, the company had more than $335 million in cash and equivalents and $849 million in marketable securities. Its stock is up 181 percent year to date.
The debt offering will take the form of convertible senior notes set to mature on Aug. 1, 2026.
Snap plans to use the funds for “general corporate purposes,” and possibly “to acquire complementary businesses, products, services, or technologies,” the news outlet said.
It’s the first time Snap is adding long-term debt to its balance sheet, and the announcement caused shares of Snap stock to tumble in early trading Tuesday (Aug. 6), closing down at $16.29. It’s about 5 percent lower than its $17 IPO price.
“Today, more than 75 percent of the 13-34 year-old population in the United States is active on Snapchat, making us larger than services like Facebook and Instagram among this audience, and demonstrating the broad-based appeal of our service,” Spiegel said in June’s second-quarter earnings report.
The social media platform is also courting big pharma companies to advertise on Snapchat, reportedly pitching itself as a friendlier alternative to Twitter and Facebook. Snap says its app encourages shared content between close friends, which opens the door to discussing personal matters. An eMarketer report from June noted that pharma digital ad spending came to $2.52 billion in 2017 and will likely top $3 billion by the close of 2019.
The company is also considering a new feature for events, similar to what Facebook offers. The feature allows for location selection as well, so it seems like it might be able to work with Snapchat’s Snap Map, which was recently updated to show friends’ locations and activities.