Snap, Inc.’s recent IPO was the largest since 2014, and represents another landmark for social media companies. While the biggest question mark for Snap probably revolves around its astronomical valuation despite significant concerns about its business model, one relatively small thing happened to stand out to us: the fees it paid for accounting services related to its IPO appear to be unusually high.1
Last week we published our annual review of trends in the fees paid by IPO companies for accounting and legal services related to the offering. All in all, accounting and legal fees combined have increased slowly but steadily over the past few years, when considered as a percentage of total IPO proceeds.
Unsurprisingly, accounting and legal fees increase as the size of the IPO increases. Further, as one can see in the chart below, legal fees typically outweigh accounting fees, by about 75% on average.
Snap’s accounting fees, however, were almost four times larger than their legal fees. And compared to other similar IPO companies, the difference stands out.
To give a clearer picture of how much of an outlier Snap’s accounting fees are, we made a scatter plot of accounting fees for the companies above compared to the log of their gross IPO proceeds. (Taking the log of gross proceeds better accounts for order of magnitude differences in the size of these IPOs, which range from $350 million to $16,000 million.)
A pretty strong trendline reflecting the relationship between proceeds and accounting fees emerges from LinkedIn to Facebook, with Snap showing as an obvious outlier.
What does this mean? Frankly, we don’t know. There aren’t many clues in the news about this, nor have we seen any significant SEC comment letters that might provide some insight.
What we can say is that Snap is in some rarefied air. It’s not just among their peers that they stand out. Their IPO accounting fees are still an outlier even when looking at over 1,000 IPOs going back to the beginning of 2012.
1. Accounting fees for registrations are not the same as audit fees and do not include audit services. Instead, they relate to services such as the auditor’s comfort letter, review of the registration statements, etc..↩