(BofA-ML) S&P 500 : Target Update : Don't underestimate & Old bu

Raising 2017 S&P 500 year-end target to 2450
We are raising our 2017 year-end S&P 500 target to 2450 (from 2300), driven by two changes: (1) we lower our end-of-year equity risk premium (ERP) assumption to 400bp (from 450bp), and (2) within our five-factor framework, we adjust our fair value model weight lower in favor of our sentiment model. These changes reflect an increasing likelihood that we are entering the typical later stages of a bull market, during which fundamentals typically take a back seat to sentiment and technicals. We think the market still has the potential to move higher as investors capitulate into equities; note that the “Great Rotation” out of fixed income into equities has yet to happen. But as we noted in our Year Ahead, we see a wide range for 2017, and investors are likely better served focusing on the internals of the market rather than on a year-end number. And for longer-term investors, elevated valuations and high leverage today shift the riskreward
balance for the market to more risks than were evident a few years ago.

We expect the market to overshoot its fair value
Typically, in the later stages of a bull market, corporate earnings are cyclically elevated and the multiple that the market assigns to those earnings is often elevated as well. As a result, market prices can become significantly overvalued relative to their intrinsic fair value, and this divergence can last for years. Thus, we would highlight the distinction between our year-end target of 2450 (driven largely by sentiment and technicals) and our estimated intrinsic fair value of 2230. For investors with long time horizons, our long-term (year 2025) target of 3500, which is based solely on valuation, indicates a solid but below-average annual price return of 4-5% (or total return of 6-7%).

Equity risk premium has moved quickly, likely to undershoot
The combination of improving investor sentiment, accelerating global growth and hopes for stimulus (i.e. the “Trump Put”) is driving the market to new highs and compressing the ERP faster than we had assumed. The normalized ERP has fallen to post-crisis lows and is less than 100bp from the 30-year average (excluding the Tech Bubble), and seems
to be in the process of undershooting as it typically does at the end of bull markets. Our fair value model currently assumes that any further ERP compression will be offset by rising normalized interest rates, and thus, no further expansion of the normalized PE. 

Watch out for volatility when the Trump put expires
We would expect the rally in lower quality stocks to fade as we get more clarity / details of potential stimulus and tax reform, where expectations today are quite optimistic relative to the likelihood of delays, friction and more negative offsets than the market is currently pricing in. Meanwhile, economic surprises are close to a five-year high and we
expect S&P 500 earnings growth to decelerate in the second quarter. While we see further room for market sentiment to improve, the market may take some time to digest the recent surge in optimism before heading higher. So while we expect stocks to end the year higher than where they are today, the road could get bumpy as we head into spring and summer months. As such, we see an elevated probability that the market falls below our 2230 fair value estimate before the end of the year.

>>> Asian Update

Asia Mid-Session Market Update: Another Fed dove endorses more tightening; Australia trade surplus shy of estimates

***US Session Highlights***
- (EU) ECB's Weidmann (Germany): inflation to be somewhat lower by end 2017 but running well above expectations currently
- (US) JAN PCE CORE M/M: 0.3% V 0.3%E; Y/Y: 1.7% V 1.7%E
- (US) JAN PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.2% V 0.3%E
- (US) Q4 PRELIMINARY GDP PRICE INDEX: 2.0% V 2.1%E; CORE PCE Q/Q: 1.2% V 1.3%E
- (US) FEB ISM MANUFACTURING: 57.7 V 56.2E; PRICES PAID: 68.0 V 68.0E (Manufacturing Activity highest since Aug 2014)
- (CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
- (US) DOE CRUDE: +1.5M V +2.5ME; GASOLINE: -0.5M V -1.5ME; DISTILLATE: -0.9M V -1ME

***US markets on close: Dow +1.5%, S&P500 +1.4%, Nasdaq +1.4%***
- Best Sector in S&P500: Financials
- Worst Sector in S&P500: Utilities
- Biggest gainers: LOW +9.5%, MYL +7.2%, WYNN +6.8%, SCHW +6.4%, CFG +5.9%
- Biggest losers: EVHC -6.3%, ENDP -6.1%, BBY -4.5%, FSLR -3.2%, FE -2.7%
- At the close: VIX 12.5 (-0.4pts); Treasuries: 2-yr 1.29% (-1bps), 10-yr 2.46% (+10bp), 30-yr 3.07% (+10bps)

***US movers afterhours***
- MNST: Reports Q4 $0.30 v $0.30e, R$753.8M v $724Me; Adds $500M to buyback plan; +14.0% afterhours
- AVGO: Reports Q1 $3.63 v $3.48e, R$4.14B v $4.06Be; Guides Q2 Rev $4.1B +/- $75M v $3.91Be; +4.0% afterhours
- ANW: Reports Q4 $0.41 v $0.39e, R$1.19B v $1.06Be (2 est); +3.8% afterhours
- SHAK: Reports Q4 $0.09 v $0.09e, R$73.3M v $70.5Me; Raises FY17 R$349-353M v $356Me ($348-352M); Op margin 25.4% v 28.2% y/y; -4.0% afterhours
- PLNT: Reports Q4 $0.20 v $0.19e, R$116.4M v $116Me; Guides initial FY17 $0.72-0.75 v $0.76e, R$405-415M v $407Me, SSS +6-8%; -5.7% afterhours
- RTRX: Reports Q4 $0.00 v -$0.21e, R$37.3M v $36.5Me; Guides FY17 net product sales $150-160M v $163Me; -8.3% afterhours

***Politics***
- (US) AG Jeff Sessions met with Russia ambassador to US twice in 2016 while he was an advisor to the Trump campaign - US press
- (US) Health and Human Services Sec Price: Getting very close to ACA replacement - US press

***Asia Key economic data:***
- (AU) AUSTRALIA JAN TRADE BALANCE (A$): +1.3B V +3.8BE; 3rd straight surplus
- (AU) AUSTRALIA JAN BUILDING APPROVALS M/M: +1.8% V -0.5%E; Y/Y: -12.0% V -11.6%E
- (KR) SOUTH KOREA FEB PMI MANUFACTURING: 49.2 V 49.0 PRIOR (6th consecutive contraction)
- (KR) SOUTH KOREA JAN INDUSTRIAL PRODUCTION M/M: 3.3% V 0.3%E; Y/Y: 1.7% V 2.1%E

***Asia Session Notable Observations, Speakers and Press***
- Asia equity markets are generally higher, tracking a sharp rise in US indices widely attributed to Pres Trump's well-received speech to Congress last night. Australia and Japan are at the top among key indices. In Sydney, miners are at the forefront of the rally, with S32 and Alumina the best performing stocks on ASX200 following reports of Aluminium output cuts in China. Nikkei remained supported by weaker Yen, with USD/JPY pair up for the 5th straight day.
- The case for March Fed rate hike has been building rapidly over the past few days amid improving economic data, Trump's fiscal spending ambitions, and receding global concerns, sending Fed funds futures probability above 65% on the CME. Today, that case got another endorsement from Fed's Lael Brainard - a voting member and typically a rather dovish speaker. Brainard said it is appropriate to increase rates soon given that US economy is closing in on full employment and inflation is close to target, though she also warned that strong USD may weigh on sentiment. Brainard also hinted that her FOMC colleagues are mostly in agreement about the time for the hike. USD added to gains after the hawkish Brainard comments, particularly vs JPY and NZD. USD/JPY hit a 2-week high above ¥114, NZD/USD approached 6-week lows around $0.71, and EUR/USD fell about 20pips below 1.0530.
- AUD/USD was hit more notably by the shortfall in the Aussie trade surplus, falling over 30pips from the highs below 0.7650. Australia trade surplus came in at about a third of its consensus (+1.3B V +3.8BE), as exports fell 3% following last month's 5% increase. Shipment value to China slowed to a 3-month low, while exports value of Coal and Iron Ore fell m/m for the first time in 6 months and 4 months respectively.
- A potential political wrinkle for Pres Trump in the wake of his popular speech came late in the Asia session, as Washington Post reported that AG Sessions held talks with Russian
Embassador Kislyak in 2016 and then subsequently denied contact with Moscow officials during his confirmation hearings.
- North Korea had some harsh words directed at South Korea and US before the two countries start their annual joint military exercises in Asia, threatening "toughest counteractions". Earlier, press report citing US govt officials stating White House is considering its options against North Korea, including possible use of force.

China
- (CN) According to a poll by American Chamber of Commerce (ACC) in South China 79% of foreign companies are optimistic about China - Chinese press
- (CN) Shanghai Centaline Property Consultants: Area of new homes sold in Feb fell 6.7% m/m to 363K sqm - Shanghai Daily

Japan
- (JP) Japan Fin Min Aso: A wider US/Japan interest rate differential would cause USD/JPY to rise further

Australia
- (NZ) RBNZ Gov Wheeler: sees risks around future rate movements as equally balanced; comfortable with economic projections
- (AU) ANZ economist:: Australia still likely to be at or close to peak in residential construction - AFR

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +1.0%, Hang Seng +0.4%, Shanghai Composite flat, ASX200 +1.2%, Kospi +0.5%
- Equity Futures: S&P500 -0.1%; Nasdaq -0.1%; Dax flat; FTSE100 -0.1%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0525-1.0550; JPY 113.65-114.15; AUD 0.7640-0.7680; NZD 0.7110-0.7150
- Apr Gold -0.2% at $1,247/oz; Apr Crude Oil -0.6% at $53.53/brl; May Copper -0.2% at $2.73/lb
- (JP) Japan MoF sells ¥2.18T in 10-year 0.1% JGBs; Avg yield: 0.082% v 0.087% prior; bid to cover: 3.74x v 3.62x prior
- (CN) PBOC SETS YUAN MID POINT AT 6.8809 V 6.8798 PRIOR; 2nd straight weaker setting
- (CN) PBOC to inject combined CNY30B v CNY30B prior in 7-day, 14-day and 28-day reverse repos

***Asia equities / Notables / movers by sector***
- Consumer discretionary: 9843.JP Nitori Holdings -1.1% (FY16/17 result speculation)
- Consumer staples: 1262.HK Labixiaoxin Snacks Group -3.5% (FY16 result)
- Financials: 2777.HK Guangzhou R&F Properties +0.7% (Feb result)
- Industrials: WOR.AU WorleyParsons +1.2% (Dar Group stake purchase); 6301.JP Komatsu Ltd +2.1%, 6305.JP Hitachi Construction Machinery +3.3% (Jefferies raises outlook)
- Technology: 6727.JP Wacom Co Ltd +14.9% (Nomura raises rating)
- Materials: IGO.AU Independence Group +8.9% (RBC raises rating); AWC.AU Alumina +9.1%, S32.AU South32 +9.8% (China may curb aluminum); YAL.AU Yancoal Australia +11.6% (guidance); MML.AU Medusa Mining +1.5% (CitiGroup raises rating); 5105.JP Toyo Tire & Rubber Co +5.8% (non-auto business sale speculation); 4004.JP Showa Denko -7.3% (delays earnings again); MRC.AU Mineral Commodities -8.3% (FY16 prelim result)

>>> US After Hours Summary: MNST +12%, AVGO +4% following earnings/gui


After Hours Summary: MNST +12%, AVGO +4% following earnings/guidance, AUPH +52% on positive lupus nephritis data.... TDOC -11%, JUNO -9%, PSTG -7% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MNST +12.4%, BLDP +10%, GKOS +7%, CWST +6.9%, HIIQ +6.4%, WTI +4.2%, PEIX +4.1%, AVGO +4%, EPE +3.1%, ALIM +2.3%, GERN +2.3%, AJRD +1.9% (ticking higher), JCAP +1.5%, HDSN +1.4%

Companies trading higher in after hours in reaction to news: AUPH +51.8% (announces its Phase IIb AURA-LV study in lupus nephritis met the complete and partial remission endpoints at 48 weeks; AURORA Phase III trial with low dose voclosporin on track to commence in 2Q17), VRML +17% (announces a contracted agreement with Blue Cross Blue Shield of Michigan for OVA1), ALQA +12.7% (Celgene [CELG] increases active stake to 22.2% (Prior 15.9%) -- Celgene purchased 4 mln shares in ALQA's 2/27 private placement), SWKS +1.3% (AVGO sympathy), VRX +1.2% (corrects 'misleading report about Salix investigation'), FBHS +0.6% (authorizes $300 mln share repurchase program over the next two years)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: TDOC -10.5%, JUNO -8.9%, PSTG -7.3%, RTRX -7%, NKTR -4.8%, PLNT -4.8%, PDLI -4.7%, OPK -4.5%, SHAK -3.9%, BOX -1.3%

Companies trading lower in after hours in reaction to news: AXTI -9.3% (to offer and sell shares of its common stock in an underwritten public offering), AHP -5.4% (commences offerings of 1,150,000 shares of 5.50% Series B Cumulative Convertible Preferred Stock and 5.75 mln of its common stock), ARES -4.5% (commences a public offering of 7.5 mln common units representing limited partnership interests by a selling unitholder), TASR -0.9% (light volume; files to delay Form 10-K)

(ZH) Prominent Hedge Fund Trader Jumps To His Death In Manhattan

Prominent Hedge Fund Trader Jumps To His Death In Manhattan

A prominent 47-year-old hedge fund trader was killed when he jumped from a luxury apartment building on Manhattan's Upper West Side, in an apparent suicide, authorities told the NY Post.
Kevin Bell, most recently head of Credit Risk at Arrowgrass Capital, jumped from a ninth-floor kitchen window at the Apthorp building on West End Avenue near West 79th Street around 7:20 a.m. He landed on scaffolding that was set up in front of the building and was pronounced dead at the scene.
Bell left a note indicating he had been depressed, the source said. He had a history of depression, the source added.
According to the NY Post, Bell left behind a wife and two daughters. His family was at home when he jumped, according to the source. “The family is hysterical. He was under a lot of meds. He did not give a specific reason why he jumped, but he was depressed,” the source said.

Bell, a graduate of Duke University, worked at Arrowgrass Capital Partners, where he was head of credit risk, according to his LinkedIn page. Arrowgrass managed $4.5 billion as of mid-2016. It is run by former Deutsche Bank traders Henry Kenner and Nicholas Niell, and in 2015 had been stocking its ranks with Saba alumni after losing several employees in its credit-trading group in April. The firm focuses on strategies including corporate distressed assets in the U.S. and Europe.
Prior to Arrowgrass, Bell worked at various prominent hedge funds and banks including Saba Capital, Citadel, Citigroup and Deutsche Bank.
“We are deeply saddened that our friend and colleague Kevin Bell has passed away today. We extend our sympathies and condolences to his family,” Arrowgrass spokesman Nick Lord told The Post in a statement from the UK.
A building worker said some residents saw the man’s body. “A couple of our residents reported hearing a thud,” the worker said. “The daughter of a tenant looked out the window and she told her mother there was a man lying down on the scaffolding.”
The worker said the mother saw the body and notified building workers.
“He was bleeding,” the worker said. “Some of the residents are pretty shaken up.”
Based on resident reports, this is not the first suicide at the building: a man who works in a nearby doctor’s office was stunned about the suicide. “Oh my God, another one?” he said in disbelief. “Somebody committed suicide a few months ago … on the other side of the building. I can’t believe it, it’s almost exactly the same thing, but just around the side.”
Among the Apthorp building’s famed tenants were Al Pacino, Sydney Poitier and singer and Oscar-winning actress Jennifer Hudson. The building, which is modeled after the Palazzo Pitti in Florence, is listed on the National Register of Historic Places and takes up an entire city block, from Broadway to West End Avenue between 78th and 79th streets.
It was unknown as of this writing if Bell's alleged depression had been impacted by recent market performance.

>>> US Close Dow +1.46% S&P +1.37% Nasdaq +1.35% Russell +1.94%

Closing Market Summary: Stocks Dash to New Record Highs Following Trump Address

President Trump's first address to Congress appeared to be a hit, at least among investors, as traders confidently pushed the major averages to fresh record highs on Wednesday. The Dow (+1.5%) finished just slightly ahead of the benchmark S&P 500 (+1.4%) and the Nasdaq (+1.4%), while the small-cap Russell 2000 (+1.9%) outperformed.

It wasn't necessarily ‘what' Mr. Trump said on Tuesday evening that fueled investors' confidence, it was ‘how' he said it. The new president looked, well, ‘presidential', a good sign that his controversial style can be toned-down when need be. More importantly, he showed investors that he is committed to getting his pro-growth promises through Congress, even if it means a little compromise.

Financials (+2.8%) led the day's advance, a role that the sector has taken frequently in the stock market's post-election rally. The financial space is now higher by 26.0% since the presidential election on November 8 and currently hovers at its highest level in over a decade.

The Treasury market aided financials in their advance as unevenly distributed selling pressure steepened the yield curve. Treasuries closed lower across the board but the 2-yr Treasury note held up relatively well compared to its peers. The 2-yr yield finished two basis points higher at 1.29% while the 10-yr yield closed higher by six basis points at 2.46%.

Selling pressure plagued U.S. Treasuries after hawkish comments from New York Fed President Dudley (FOMC voter) on Tuesday evening. Mr. Dudley got investors seriously thinking about the possibility of a March rate hike, saying the case for increasing interest rates has become "a lot more compelling."

The fed funds futures market now points to March as an increasingly likely time for the next rate hike to be announced with an implied probability of 66.4%, spiking from yesterday's reading of 35.4%.

Just behind the financial space at the top of today's leaderboard was the energy sector (+2.1%), which finished Wednesday substantially higher despite a downtick in crude oil. The energy component closed 0.4% lower at $53.82/bbl, squandering its early modest gain following the latest EIA crude inventory report, which showed a build of 1.5 million barrels.

Conversely, the consumer discretionary (+1.0%) and the consumer staples (+0.4%) sectors failed to keep pace with the broader market amid a downtick in retailers. Best Buy (BBY 42.14, -1.99), Ross Stores (ROST 66.80, -1.78), and American Eagle Outfitters (AEO 14.34, -1.51) all reported their earnings between yesterday's close and today's open, but the reactions were generally negative after all three companies issued some form of disappointing guidance.

However, the SPDR S&P 500 Retail ETF's (XRT 42.89, -0.04) loss was capped thanks in part to a positive performance from Lowe's (LOW 81.45, +7.08). The company spiked 9.5% after reporting better than expected earnings and revenues in addition to issuing upbeat guidance.

On the downside, the rate-sensitive utilities (-1.0%) and real estate (-0.3%) sectors were the only two groups to finish Wednesday in the red. The spaces slipped in reaction to today's uptick in interest rates.

Also of note, the Wall Street Journal reported late this afternoon that Snap, the parent company of the popular messaging app Snapchat, will be priced in its IPO at $17.00/share. The company will begin trading on the New York Stock Exchange tomorrow morning under the ticker ‘SNAP'.

Today's economic data included January Personal Income, February ISM Index, January Construction Spending, and the MBA Mortgage Applications Index: 

  • January personal income rose 0.4%, which is in line with the consensus. Meanwhile, January personal spending increased 0.2% while the consensus expected a reading of 0.3%. The December Personal Spending and Personal Income readings were both left unrevised at 0.5% and 0.3%, respectively. Core PCE prices for January rose 0.3% (consensus 0.2%). The December reading was left unrevised at 0.1%.
    • The sticking point with this report is twofold: (1) Real PCE declined 0.3%, led by a 0.3% decline in goods spending and a 0.2% decline in spending on services. That is going to be a negative input for Q1 GDP forecasts; and (2) The PCE Price Index was up 1.9% year-over-year, which leaves it tracking toward, and very close to, the Fed's longer-run inflation target of 2.0%, which is to say it seems to satisfy the argument of any Fed official aiming to raise the policy rate at the March meeting (the core PCE Price Index was up 1.7% year-over-year, unchanged from December).
  • The ISM Index for February rose to 57.7 from an unrevised reading of 56.0 in January while the consensus expected an uptick to 56.1.
    • The key takeaway from the report is that manufacturing purchasing managers are feeling better about business prospects based in large part on the faster growth they are seeing in new orders.
  • The Construction Spending report for January showed a 1.0% decrease while the consensus expected an increase of 0.6%. The prior month's reading was revised to +0.1% from -0.2%.
    • The key takeaway from the report is that the decline in January was driven by public construction spending.
  • The weekly MBA Mortgage Applications Index, which was released earlier this morning, increased 5.8% to follow last week's 2.0% downtick.

Additionally, the Fed's Beige Book for March indicated that the economy expanded at a modest to moderate pace from early January through mid-February. The report also showed that business were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report.

On Thursday, investors will receive February Challenger Job Cuts at 7:30 ET and the weekly Initial Claims report at 8:30 ET.

  • Nasdaq Composite +9.7% YTD
  • S&P 500 +7.0% YTD
  • Dow Jones Industrial Average +6.9% YTD
  • Russell 2000 +4.2% YTD

Reuters - FCC blocks stricter broadband privacy rules from taking effect

The U.S. Federal Communications Commission on Wednesday blocked some Obama administration rules approved last year that would have subjected broadband providers to stricter scrutiny than websites, a victory for internet providers such as AT&T Inc, Comcast Corp and Verizon Communications Inc .

The rules, which were scheduled to take effect on Thursday, aimed to protect personal consumer data. They would subject broadband internet service providers to more stringent data security requirements than websites like Facebook Inc, Twitter Inc or Alphabet Inc's Google unit.

The decision will "provide time for the FCC to work with the (Federal Trade Commission) to create a comprehensive and consistent framework for protecting Americans’ online privacy," the agency said in a statement.

Under the rules, internet service providers would need to obtain consumer consent before using precise geo-location, financial information, health information, children's information and web browsing history for advertising and internal marketing. For less sensitive information such as email addresses or service tiers, consumers would be able to opt out.

FCC Chair Ajit Pai and acting FTC Chair Maureen Ohlhausen in a joint statement said they would work to ensure a consistent privacy framework.

"After all, Americans care about the overall privacy of their information when they use the internet, and they shouldn’t have to be lawyers or engineers to figure out if their information is protected differently depending on which part of the internet holds it," they said. "The federal government shouldn’t favor one set of companies over another - and certainly not when it comes to a marketplace as dynamic as the Internet."

FCC Commissioner Mignon Clyburn, a Democrat, said she opposed the move. "The same agency that should be the 'cop on the beat' when it comes to ensuring appropriate consumer protections is leaving broadband customers without assurances that their providers will keep their data secure," she said in a statement.

Republican commissioners including Pai said in October that the rules unfairly give websites the ability to harvest more data than service providers and dominate digital advertising.

The FCC in 2015 stripped the FTC of the authority to oversee broadband privacy, and the pair said they believe authority should be returned to the FTC.

WSJ : Snapchat Parent Snap Prices IPO Above Projected Range

Snapchat Parent Snap Prices IPO Above Projected Range
Shares priced at $17 each, valuing firm at $24 billion in biggest U.S. tech debut since Alibaba

Snap Inc. shares priced at $17 each, above the projected range and valuing the company at nearly $24 billion, the highest such total for a U.S.-listed initial public offering since Alibaba Group Holding Ltd. in 2014.

Snap, parent of the popular disappearing-message app Snapchat, last month projected its initial shares would price between $14 to $16 a share, but in recent days, a per-share price of $17 or $18 was expected by people familiar with the offering.

The stock is expected to begin trading Thursday on the New York Stock Exchange, under the symbol “SNAP.” If the IPO is successful, it could awaken what has been a largely dormant tech IPO market, according to analysts, investors and bankers.


Snap executives have traversed the U.S., plus a stop in London, to pitch to prospective investors. The company was pressed about growth potential for daily average users, Snap’s ability to ramp up revenue per user, the founders’ unusually high level of voting control, the logic behind calling itself a camera company and its plans to fight competition, according to several investors who were considering taking part in the IPO.

The recent drought of startups going public has emboldened many investors to brush aside these concerns, they said. “People love the space, and it isn’t like there’s a new entrant every quarter or every year even,” said Sean Stiefel, portfolio manager at Navy Capital LLC, who said he is buying into the deal.

Snap executives are taking unusual steps to try to ensure the IPO’s success, people familiar with the deal said.

The company has said roughly one-quarter of its planned float—the total number of shares that will be sold in the offering—would be subject to a lockup of one year before they can be sold. The company planned to sell those shares to a consortium of existing investors, who got in before the IPO process began, people familiar with the deal said. Other investors will be locked up for less time. Such moves could damp volatility by limiting the number of short-term stockholders who can jump in and out.

Snap’s chief strategy officer, Imran Khan, has taken a big role alongside lead underwriters Morgan Stanley and Goldman Sachs Group Inc. and is helping to decide which firms receive an allocation of the new shares, said people familiar with the deal. Such decisions are typically handled largely by the underwriters. Before Mr. Khan joined Snap, he headed internet banking at Credit Suisse Group AG, where he helped lead Alibaba Group Holding Ltd.’s IPO in 2014.

Snap also hopes to avoid a surge in shares, some of the people said, which can be viewed as untenable and suggests the company and selling shareholders could have obtained a higher price for the shares in the offering.


Investors piled into some recent tech IPOs, including Nutanix Inc. and Twilio Inc., when they went public in 2016 during what became the slowest year for U.S. tech IPOs since 2009. Nutanix’s stock rose 131% in its first day of trading and remains nearly double its IPO price. Twilio’s stock closed up 92% on its first day of trading at $28.79 and nearly reached $69 in the months following its IPO. It remains up more than 100% from its IPO price but is down more than 50% from its post-IPO highs.

If Snap’s debut goes well, it could encourage other tech startups to move forward with IPOs. While Uber Technologies Inc. and Airbnb Inc. are unlikely to make debuts in 2017, many of the smaller firms between $1 billion and $5 billion are expected to go public this year, said bankers and lawyers familiar with the pipeline.

As of January, there were more than 150 technology companies valued at $1 billion or more by venture-capital firms, according to The Wall Street Journal and Dow Jones VentureSource, which track companies valued at $1 billion or more through their Billion Dollar Startup Club.

WSJ : Winning Bet on Snap Shows Luck’s Leading Role in Venture Business

Winning Bet on Snap Shows Luck’s Leading Role in Venture Business
Lightspeed’s $8 million investment yielded stock that will likely be worth over $1 billion after Wednesday’s IPO

Jeremy Liew got lucky. A colleague at Lightspeed Venture Partners told him that his daughter and her friends were hooked on a new app called Snapchat. Mr. Liew, sensing the next hot thing in tech, wanted to invest.
It took days for the venture capitalist to track down the young man behind the company, a Stanford University senior named Evan Spiegel, and then a dash of good fortune to persuade him to stop by Lightspeed’s office.
That meeting in early 2012 led to one of the most lucrative startup bets since the dot-com boom. Lightspeed’s $485,000 seed money, plus another $7.5 million investment, yielded stock that will likely be worth over $1 billion after the company now known as Snap Inc. prices its public offering expected Wednesday. Venture firm Benchmark, another early Snap investor, put in $24 million for a stake set to be worth about $2 billion.
Mr. Liew declined to comment about the IPO and the company’s future prospects.
Striking gold in the venture business is exceedingly rare, the product of not only investment acumen and business connections but also lots of luck. Blockbuster investments can cement a firm’s reputation for years to come, and give it an inside track on the next wave of promising entrepreneurs.
Accel Partners still basks in the halo of an investment made 12 years ago after its investment principal Kevin Efrusy got a tip from an intern at Stanford about a website called Thefacebook. Mr. Efrusy all but broke down the startup’s door to convince the company to take his firm’s money.

Accel’s $15 million investment ultimately returned $5.6 billion after Facebook Inc. went public in 2012, a nearly 400-to-1 payout, according to the firm’s spokesman.
Years of lackluster returns may have taken some shine off Kleiner Perkins Caufield & Byers, yet it still has a top venture brand name 18 years after it struck deals for dot-com era winners like Alphabet Inc., then called Google. That $12 million investment in 1999 reaped $4.8 billion for Kleiner, said a spokeswoman for the firm.


Kleiner missed the ensuing social-networking craze, betting on Friendster instead of Facebook, and steered vast sums of money into capital-intensive clean-technology projects, a troubled investment that is taking years for Kleiner to shake off. Kleiner did invest in Snap in 2014, and will roughly double its return in the IPO, and has had several successful investments such as in Nest Labs, bought by Google last year for over $3 billion.
Mr. Efrusy says finding startups like Facebook or Snap is akin to getting struck by lightning, but that smart investors prepare themselves by looking for companies and founders with unique characteristics. “You have to be holding a metal rod in a thunderstorm in the middle of Kansas,” he said.
Mr. Liew watches for social-media companies exploding in popularity among young women, who he says are the trendsetters.
Even for the best funds, the vast majority of venture deals aren’t lottery winners. Of the more than 14,300 U.S. companies that raised venture capital in the past decade, Snap will become one of just 30, or 0.2%, that later got valued in an IPO at $1 billion or more, according to Dow Jones VentureSource.
The venture industry hopes Snap’s offering ignites the IPO market, which dried up last year in part because public investors haven’t shown a willingness to pay up for private tech companies whose valuations rocketed past their business fundamentals. Fewer IPOs mean venture firms are struggling to turn their paper gains into cash.
Lightspeed, founded in 2000, hopes investments in Snap, and other companies like Nutanix Inc. and AppDynamics Inc. that have gone public or were acquired, will solidify its place as a top firm.
Back in 2012, Mr. Liew tried at least three different ways to reach Snapchat before he located Mr. Spiegel’s name. His lucky break was that Mr. Spiegel was a Stanford student, where Mr. Liew graduated, giving him access to the university’s Facebook group. Mr. Liew messaged Mr. Spiegel and got a response in minutes.
When Mr. Spiegel visited Lightspeed’s office he shared internal analytics data that showed user growth exploding. The 21-year-old impressed Lightspeed’s partners with his insight that evaporating conversations meant people shared more spontaneously on Snapchat than other social networks.
“Accidents don’t last,” Mr. Efrusy said. “Entrepreneurs get lucky, but they also have to be good. Look at the difference between the trajectories of Facebook and Myspace.”
Fears Snapchat was used for sexting were allayed by data that showed most photos were shared while teens were in school. About two weeks after that meeting, Lightspeed struck a deal while Mr. Spiegel was on spring break in Argentina.
Lightspeed’s trophy investment is slightly tarnished, though. A condition of the firm’s investment, earlier reported by the New York Times, guaranteed Lightspeed the right of first refusal to invest a large amount in Snap’s subsequent funding round.
The idea was to protect its economic interest in the company if things went well. But when a new investor, General Catalyst Partners, emerged in the summer of 2012, Lightspeed exercised its right to boost its ownership and that investor walked away. This angered Mr. Spiegel, who blamed Lightspeed for the broken deal, according to people familiar with the matter. Rival venture capitalists have seized on the episode, calling it a blemish on Lightspeed’s record.
A Snap spokeswoman declined to comment.
Mr. Liew declines to discuss the episode in detail. He still communicates on occasion with Snap executives, according to people familiar with the matter, contrary to rumors that all communication has ceased in recent years. He was in attendance at the company’s IPO roadshow event in San Francisco on Monday.