Snapchat’s IPO: What Marketers Must Know
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Snap Inc. (formerly Snapchat Inc.) privately filed for its IPO prior to the U.S. election on November 8, 2016. While Snapchat's revenue is currently below $1B (businesses with less than $1B revenue can file confidentially via Jumpstart Our Business Startups Act), it's projected to hit the $1B mark as early as 2017 (WSJ).
Snapchat captured the attention of the media world shortly after it was launched in 2011. Despite not receiving Series A funding until almost two years into its existence, the mobile-only app almost immediately drew a young, on-the-go audience hungry for a new way to express themselves on social media. As Snap Inc.'s official IPO date finalizes (some are predicting as early as March), here's what marketers need to know about Snapchat's potential $40B IPO:
The History Leading Up To Snapchat's IPO
In November of 2013, Facebook sought to buy Snapchat for $3B. This offer was rejected by CEO Evan Spiegel, a decision questioned by many at the time. Since then, the company has received $2.65B in funding and has innovated the app at a relentless pace. The steady stream rollout of new user features further engaged its audiences and eventually in spring of 2015, Snapchat began earning ad revenue. Efforts since have largely focused on accommodating many of the app’s core features for advertisers.
The latest stats in the U.S. indicate a a strong trajectory:
- Snapchat has grown nearly 80% to almost 59 million users this year, up from 33 million just two years ago
- One in four of the U.S. social media population has an active Snapchat account
- Millennials are driving Snapchat's growth—70% of the coveted 18-24 demographic is an active user
- Snapchat itself claims over 100 million daily active users (with others projecting as many as 150 million DAUs), over 60% of which it says creates new content daily.
Related Post: Snapchat Demographics for Marketers [Infographic]
Snapchat IPO: Growth, Comparison With Facebook, & More
Snap Inc. is seeking additional funds with an IPO planned for March. Such a public offering could bring in as much as $4 billion on a valuation of $25B. This valuation is further bolstered by that fact that it has been a relatively slow period in terms of tech IPOs. Snapchat's IPO is the largest since Alibaba went public two years ago at a $171B.
Snapchat’s initial public valuation is in the range of other significant tech IPOs. Google, now worth around $500B, and Facebook, currently valued at about $350B, publicly listed during times very different from the current one. Twitter, now valued around $16B, has failed to grow much since their IPO in 2013.
Snapchat revenue estimates for this year far exceed last year’s reported $366M. An eMarketer forecast predicts $935 million in ad revenue alone next year and up to $1.7B in 2018. This valuation of 25X annual revenue is considerably higher than Facebook's (13X) at the time of their IPO. Global user growth rate is the main reason for this difference.
Global user growth is projected to be about 28% YoY going into next year. This is right between Twitter (30%) and Facebook (25%) in the years going into their IPOs. Assuming the same rate for 2017 to 2018, global user count may amount to almost 250M Snapchat daily active users by June 2018:
While much smaller (from a revenue standpoint) than Facebook and Google at the time of their IPOs, Snap Inc’s forecasted annual revenue growth rate is significantly higher:
Snapchat, in terms of size, looks very similar to Twitter when it IPOed in 2013 at a $14B valuation. Twitter has since struggled and Snapchat seems to have learned from their story. To date, Snapchat has undoubtedly done two things better: monetization and product innovation.
How Snapchat Generates (Or Will Generate) Its Revenue
As described by CEO Evan Spiegel, Snapchat's business model generates revenue via 1) camera, 2) content, and 3) communication (Quartz):
- Camera—Geofilters, Sponsored Lenses
- Content—Snap Ads, Discover
In its relatively brief life, Snapchat has innovated relentlessly, blazing its own trail at almost every turn. More recently, the company has focused its attention on advertising—in June, it introduced a number of new features, including an ongoing list of vetted creative agency partners and an API that provides access to programmatic interfaces, easing the road to ad buying. It also has plans to further enhance their ad targeting capabilities, including behavioral targeting.
Snapchat also recently moved into hardware with the introduction of Spectacles. This device allows wearers to record 10-second videos that are then automatically uploaded to the app. The product launch seems to indicate a strong desire by Snapchat to grab a share hold in the larger motion picture and entertainment industry. Additionally, the product helped introduce a new video format—one that mimics actual human vision.
Nevertheless, a few notable features are still lacking in the app. Snapchat continues to pretty much be a standalone app—the lack of integration points with other established social media platforms, standard marketing dashboards, and relatively high cost of ads continues to present a challenge for many marketers. Additionally, search and other discovery features in the app are mostly non-existent.
Is Snapchat Really Worth $25 Billion?
Snapchat’s U.S. user base is forecasted to grow nearly 50% to 85 million by 2020 and it boasts an engagement rate up to 5X the average social network.
By most accounts, Snapchat has an extremely bright future. Not only are user and revenue numbers expected to skyrocket in the next few years, it’s setting many of the rules of the game. Facebook, Inc. is actively copying many of Snapchat's key features for Facebook, Instagram, Messenger, and WhatsApp.
The competitive landscape will continue to evolve and all indications point towards Snapchat continuing to learn from others and adapt. Vine was recently shut down largely because of their inability to innovate (at one point Vine too was a top downloaded social media app). And no doubt, Snapchat is closely following the latest hot app, Musical.ly, which seems to represent the next iteration of the social video movement.
The social media app field is a finicky one, though. While Snapchat is on the tip of everyone’s tongue right now this could change at any moment when users discover a new, more compelling app. For the time being, though, Snapchat appears well-positioned to capitalize on forecasted revenue, user growth, and recent product innovations towards its impending IPO.
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November 22, 2016 By Mediakix Team