Snap Stock Slides as Company Announces Convertible-Debt Offering

Snap goes further into debt

In a press release this morning, Snap said that it would sell $650 million in convertible senior notes due in 2030. Underwriters would have the option of selling an additional $100 million in debt.

The company plans to use the proceeds to repurchase a portion of outstanding convertible senior notes due in 2025 and 2026. The remainder will go to general corporate purposes including working capital, operating expenses, capital expenditures, and acquisitions of complementary businesses.

Why investors disliked the move

Share dilution has long been a problem for the Snapchat parent as the unprofitable company has lavishly paid its employees in company stock, even as its share price has mostly underwhelmed. In the first quarter, Snap showed signs of turning the corner as a business as its revenue jumped 21% to $1.19 billion, but share-based compensation remained significant at $263.8 million, or roughly 22% of revenue. Its total shares outstanding rose more than 4% over the last year due to stock-based compensation.

Snap's balance sheet looks stable with $3.3 billion in convertible debt currently, but the upcoming maturities explain why the company is looking to tap the debt markets. Selling more convertible debt also threatens to add to the increasingly bloated share count and shows the company could still be a long way from being able to fund its own growth and pay down its debt. Investors would prefer that to change by the company turning profitable.