Snapchat’s parent company, Snap, has filed for its much-anticipated IPO, and with the Snapchat IPO filing comes new information on Snapchat’s users, revenue, valuation, expectations, and company structure. Snap has lofty expectations, but whether or not it’s equipped to meet its valuation and capital raising goals amid slowing growth and increasing competition from Instagram remains to be seen.
Here are the top 10 things to know about the Snapchat IPO and what it means for the app, for Snap as a “camera company,” and for advertising on Snapchat.
Snap’s long been a company of lofty goals, and its IPO is no exception. It’s targeting the $3 billion mark for its IPO, which will push its total valuation over $20 billion. Snapchat’s enjoyed meteoric success, but it isn’t without pitfalls. It isn’t yet a profitable company and lately it’s encountered growth pitfalls that may stand in the way of that $3 billion goal.
Snap’s revenue growth from 2015 to 2016 was tremendous, increasing from $58.7 million in 2015 to $404.5 million in 2016. Much of that is due to a boom in advertising in Snapchat brought about by new features on the platform, and ads account for the vast majority of Snap’s total revenue.For context, it’s worth noting that impressive though Snapchat’s growth in revenue may be, Instagram sold $2 billion worth of ads last year.
Snap isn’t profitable now, and, by its own admission, might never be profitable. There’s a line in the S-1 filing that reads, “We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”
Granted, we know part of why Snapchat posts major losses: Servers.
For the most part, Snap competitors like Facebook and Twitter own their own servers while Snapchat rents its server space—a deeply costly endeavor. Instagram was in the same boat before Facebook bought it in 2012.
And that could be a big problem.
We’ve already established that Snap’s looking to raise big money (no whammies), but given that it’s not profitable, that could be a big ask with a big share price to match. Fortune used the price-to-sales metric to compare the stock valuation of Snapchat (based on an estimated $25 billion valuation) to other major tech IPOs and found that Snapchat came in way, way higher than the rest. Snap comes in at 61.7 p/s compared to the Facebook’s 12.6 and Twitter’s mere 4.2.
$3 billion is a lot to look for from a company that isn’t a profitable. That being said, Snapchat does have a deeply engaged base and an impressive story of overall growth.
Per Snap’s first prospectus released yesterday, over 2.5 billion Snaps are sent from the app every day. Snapchat boasts, on average, 158 million daily active users, 25% of whom post to their Story every day. And on average, those daily active users visit the app more than 18 times per day
Following the release of Instagram Stories (which closely mimic Snapchat Stories — a major pillar of the Snapchat experience), engagement is way down on Snapchat. According to reports from Techcrunch, view counts on Snapchat Stories are down somewhere between 15-40% following the introduction and proliferation of Instagram Stories. This drop in engagement comes at a profoundly inopportune time, too. If Instagram continues to sway users to its own version of Stories, Snapchat’s going to have a hard time clawing its way to profitability.
If you had to choose between the two, you want to be Facebook. But from posting comparatively modest revenues and significant losses to relatively slight user bases, Snap’s IPO is less like Facebook’s and more like Twitter’s. Facebook was already bringing in $1 billion in profit by the time it filed for its IPO, had 483 million daily active users (to Snapchat’s 158 million) and reported revenue of $3.7 billion in the year prior to its IPO, compared to Snapchat’s paltry $404 million.
Though it’s numbers are nowhere near Facebook-level proportions, it’s worth nothing that Snap’s IPO is coming much earlier than Facebook’s. Facebook had been around for 8 years before it filed for its IPO, but Snap has only been around for five.
The shares Snap is selling are Class A common stock, which hold no voting power. Instead, control will remain with CEO Evan Spiegel and co-founder Bobby Murphy. Between them, they hold roughly 89% of Snap’s voting power.
We often compare Snapchat to social networks like Twitter and Facebook, Snap doesn’t necessarily see itself that way. It sees itself as “a camera company.” Spectacles represented Snap’s first foray into hardware, but it may not be the last, and Snap seems to have big plans for Spectacles in the future. Viewing Snap as a camera company instead of an app and social platform fundamentally reframes the way that we think about it. Instead of a social ecosystem, it becomes a perspective tool, and that opens it open to a wealth of opportunities, provided Snap’s positioned to capitalize on them.