Snap Inc, the parent of the ephemeral social network Snapchat, warned that its exposure to the United Kingdom after the Brexit vote presented a risk to investing in the company’s initial public offering.
The Venice, California-based company said that it intended to license a portion of its intellectual property to a UK subsidiary and base a “significant portion” of its overseas operations in the country. Snap said the uncertainty surrounding Brexit meant it was unable to assess the potential impact on its business.
Snap is not the first company to issue a Brexit warning. BlackRock, the world’s largest asset manager, has inserted Brexit risk language into prospectuses of mutual funds that have significant European exposure.
In its filing with US securities regulators, Snap noted:
The long-term nature of the United Kingdom’s relationship with the European Union is unclear and there is considerable uncertainty when any relationship will be agreed and implemented. The political and economic instability created by Brexit has caused and may continue to cause significant volatility in global financial markets and uncertainty regarding the regulation of data protection in the United Kingdom.
The full effect of Brexit is uncertain and depends on any agreements the United Kingdom may make to retain access to European Union markets. Consequently, no assurance can be given about the impact of the outcome and our business, including operational and tax policies, may be seriously harmed or require reassessment if our European operations or presence become a significant part of our business.
The full section of Snap’s IPO prospectus — about 30 pages — also lists the control co-founders Evan Spiegel and Robert Murphy will hold as a risk. Others include:
- Highly competitive business with rivals including Apple, Facebook, Google, Twitter, Kakao, Line, Naver and Tencent
- Its reliance on Google Cloud, which provides the infrastructure that Snapchat uses
- That it has never turned a profit and “may never achieve or maintain profitability”
- The company is unlikely to find an immediate suitable replacement if it were to lose Messrs Spiegel or Murphy, who, it notes, have received threats in the past
- A security compromise could harm its business
- Its user metrics are subject to “inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation”
- It may not “effectively manage” its growth
- Its “costs are growing rapidly, which could seriously harm our business or increase our losses”
- “Unfavorable media coverage could seriously harm our business”
The list goes on. To read the full section, turn to page 12 of the prospectus, available here.