S&P Global Market Intelligence employed its own proprietary credit scoring model to apply a credit score to Snap in the run-up to its IPO in early March. The result: A suggested credit score of “b,” which is more in line with peers like Twitter and Yelp (
“Snap’s credit score denotes elevated credit risk,” wrote Jim Elder, a director in S&P Global Market Intelligence’s Risk Services Business. “More specifically, it would equate to a 4.45% observed default rate over a one-year period, or nearly a one in 20 occurrence of default. To put that into perspective, Snap’s credit score is more risky than the median level of risk in the Application Software industry, which is ‘b+.’”
Twitter, for comparison, earned a credit score of “b” and Yelp’s credit score was “ccc+” during their respective IPO periods. Their credit scores rose several notches in the months and years following. Facebook, meanwhile, started out with a “bbb+” credit score rating from S&P Global Market Intelligence and dipped briefly before ultimately notching an excellent “a+.”
How can Snap improve its credit quality? Elder recommended that Snap look to debt markets for future funding, as well as display improved profitablity, which could prove challenging.
Snap acknowledged a number of risks in its IPO filing, including user base growth that could decline and revenue that’s entirely generated from ads. Snap also pointed to its unorthodox issuance of non-voting shares as a risk factor.
“We are not aware of any other company that has completed an initial public offering of non-voting stock on a U.S. stock exchange,” part of
Snap, however, may also benefit from the slew of positive “Buy,” “Outperform,” and “Overweight” ratings
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