What happened

Shares of Snap (SNAP -4.59%) have declined today, down by 3% as of 12:20 p.m. EDT, after the Snapchat parent announced a private offering of convertible senior notes. The move comes after the stock skyrocketed 37% yesterday following strong first-quarter earnings results.

So what

Earlier this week, Snap said it added 11 million daily active users (DAUs) in the first quarter, bringing total DAUs to 229 million. That helped revenue soar 44% to $462 million. While the tech company meaningfully improved its cash burn, with free cash flow going from negative $78 million to just negative $4.6 million, that figure is still in the red. Operating cash flow was positive for the first time ever, and Snap finished the quarter with around $2.1 billion in cash on the balance sheet.

Three screenshots showing Snapchat Lens Explorer interface

Image source: Snap.

Snap is looking to raise $750 million through the offering, which will be a private placement with qualified institutional investors. The investors will have an option to purchase up to $112.5 million more, and the notes will come due in 2025.

Now what

Terms such as the interest rate and conversion price have not yet been finalized, but Snap intends to use a part of the proceeds to enter into capped call transactions, a common strategy associated with convertible notes that is designed to mitigate potential dilution related to conversions. Institutional investors that purchase convertible notes also frequently short-sell the underlying stock as part of a convertible arbitrage strategy, which often adds selling pressure as those investors establish positions.