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Here Are A Few Things To Know Ahead of Snap Inc.'s Spring IPO
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Snap Inc., the parent company of the disappearing messaging app Snapchat, on Thursday, Feb. 2 filed its highly anticipated IPO.
The five-year-old California-based technology company has evolved its business model in the last few years, and its user base is made up of the coveted 18-to-34-year-old demographic. But does Snapchat’s popularity with American Millennials make Snap’s IPO worth its estimated $20 to $25 billion valuation come March?
The short answer: no one knows.
Brief Backstory
Twitter went public in Fall 2013, and it has failed to meet the expectations of its similarly lofty initial valuation ever since. So, it might be best to temper expectations for Snap Inc. But here are some facts to help put the next big tech IPO into perspective.
Snapchat began as a disappearing picture and video messaging app. And it quickly became popular with young people. Over the past few years, behind an ever growing and loaded group of top executives, Snap has focused on user engagement, increasing advertising revenue, and innovation – its prospectus proudly proclaimed, “Snap Inc. is a camera company.”
Advertising Dollars
In the last two years, Facebook shifted its focus to video and live video, in part because it saw Snapchat’s success. But more importantly, because that is where the advertising dollars are shifting.
As young people shift away from regular linear television viewing, advertisers need new outlets to reach that coveted audience. Nielsen reported a 37% decline in the amount of time 18-to-24-year-olds watched TV between 2010 and 2016. And many reports indicate that a larger percentage of advertising budgets will be spent online by 2020.
Snapchat has partnerships with the four major North American professional sports leagues, MLB, the NFL, the NHL and the NBA. The company also has content and sponsorship deals with major media outlets such as ESPN, CNN, and Buzzfeed. It also runs standard video ads spread out between users’ content.
The company still sells most of its ad space in-house. But Snap announced it updated its ad platform to allow marketers the ability to purchase ads in real-time through automated ad-buying technology used heavily by Facebook and Google (GOOGL - Free Report) , and now dominates the space. This will give Snap the opportunity to increase its ad revenue – the key to its profitability
User Base
Millennials use the app, unlike Twitter or Facebook. Snapchat users send and post photos or videos that never last longer than 10 seconds. Time sensitivity has fostered massive active user engagement, which is key to its long-term profitability.
A portion of Snap’s IPO pitch focused on its ability to engage with the 18-to-34-year-old demographic. This focus is due in large part to the fact that Snapchat’s user base and global reach is microscopic compared to Facebook.
“If we fail to retain current users or add new users, or if our users engage less with Snapchat, our business would be seriously harmed,” the filing noted.
Yet, Snapchat users spend an average of 25 to 30 minutes a day on the app, while Facebook users, which include Instagram and Messenger, spend 50 minutes.
Snap Inc. closed 2016 with 161 million daily users, and its average revenue per user rose to $1.05 in the fourth quarter from $0.31 a year ago. The company reported revenue of $404.5 million. Still, it reported a loss of $514.6 million, up from a loss of $373 million the year before.
Facebook made $7 per user in the fourth quarter 2016 from its 1.2 billion users. The company reported revenue of $27 billion.
Snapchat added 50 million daily active users in 2016. But user growth curtailed near the end of the year, adding just five million users in the fourth quarter. The company’s offering last week noted that this was due to competition. One such competitor is Instagram, which now allows users access to similar disappearing video messaging features.
Last quarter was Snapchat’s smallest quarter-over-quarter user jump in three years.
New Endeavors
Snap recently introduced its first product, Spectacles, in Fall 2016. The new sunglasses have video cameras that allow users to post directly to Snapchat. As of now, Spectacles aren’t widely available.
The company has grown its popularity through many unique and innovative partnerships. It recently partnered with the BBC for the release of the U.K.-based network’s Planet Earth II. Partnerships outside of the U.S. will be key as the company tries to expand and grow Snapchat’s user base.
Snap is set to issue only nonvoting shares come March. Despite Snap’s experienced leadership team, Spiegel and co-founder and CTO Bobby Murphy will maintain a vast majority of the company’s voting shares when it goes public.
Spiegel, 26, and Murphy, 28, currently hold roughly 90% of the voting shares. If either were to die, or become unable to perform his role, the other could control almost all of the voting power.
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Here Are A Few Things To Know Ahead of Snap Inc.'s Spring IPO
Snap Inc., the parent company of the disappearing messaging app Snapchat, on Thursday, Feb. 2 filed its highly anticipated IPO.
The five-year-old California-based technology company has evolved its business model in the last few years, and its user base is made up of the coveted 18-to-34-year-old demographic. But does Snapchat’s popularity with American Millennials make Snap’s IPO worth its estimated $20 to $25 billion valuation come March?
The short answer: no one knows.
Brief Backstory
Twitter went public in Fall 2013, and it has failed to meet the expectations of its similarly lofty initial valuation ever since. So, it might be best to temper expectations for Snap Inc. But here are some facts to help put the next big tech IPO into perspective.
Facebook tried to buy Snapchat for $3 billion cash in 2013. Evan Spiegel, Snapchat’s co-founder and CEO, turned the offer down. Since then, the social media giant has focused on competing with and mimicking Snapchat in the race to own the under-34 demographic online.
Snapchat began as a disappearing picture and video messaging app. And it quickly became popular with young people. Over the past few years, behind an ever growing and loaded group of top executives, Snap has focused on user engagement, increasing advertising revenue, and innovation – its prospectus proudly proclaimed, “Snap Inc. is a camera company.”
Advertising Dollars
In the last two years, Facebook shifted its focus to video and live video, in part because it saw Snapchat’s success. But more importantly, because that is where the advertising dollars are shifting.
As young people shift away from regular linear television viewing, advertisers need new outlets to reach that coveted audience. Nielsen reported a 37% decline in the amount of time 18-to-24-year-olds watched TV between 2010 and 2016. And many reports indicate that a larger percentage of advertising budgets will be spent online by 2020.
Snapchat has partnerships with the four major North American professional sports leagues, MLB, the NFL, the NHL and the NBA. The company also has content and sponsorship deals with major media outlets such as ESPN, CNN, and Buzzfeed. It also runs standard video ads spread out between users’ content.
The company still sells most of its ad space in-house. But Snap announced it updated its ad platform to allow marketers the ability to purchase ads in real-time through automated ad-buying technology used heavily by Facebook and Google (GOOGL - Free Report) , and now dominates the space. This will give Snap the opportunity to increase its ad revenue – the key to its profitability
User Base
Millennials use the app, unlike Twitter or Facebook. Snapchat users send and post photos or videos that never last longer than 10 seconds. Time sensitivity has fostered massive active user engagement, which is key to its long-term profitability.
A portion of Snap’s IPO pitch focused on its ability to engage with the 18-to-34-year-old demographic. This focus is due in large part to the fact that Snapchat’s user base and global reach is microscopic compared to Facebook.
“If we fail to retain current users or add new users, or if our users engage less with Snapchat, our business would be seriously harmed,” the filing noted.
Yet, Snapchat users spend an average of 25 to 30 minutes a day on the app, while Facebook users, which include Instagram and Messenger, spend 50 minutes.
Snap Inc. closed 2016 with 161 million daily users, and its average revenue per user rose to $1.05 in the fourth quarter from $0.31 a year ago. The company reported revenue of $404.5 million. Still, it reported a loss of $514.6 million, up from a loss of $373 million the year before.
Facebook made $7 per user in the fourth quarter 2016 from its 1.2 billion users. The company reported revenue of $27 billion.
Snapchat added 50 million daily active users in 2016. But user growth curtailed near the end of the year, adding just five million users in the fourth quarter. The company’s offering last week noted that this was due to competition. One such competitor is Instagram, which now allows users access to similar disappearing video messaging features.
Last quarter was Snapchat’s smallest quarter-over-quarter user jump in three years.
New Endeavors
Snap recently introduced its first product, Spectacles, in Fall 2016. The new sunglasses have video cameras that allow users to post directly to Snapchat. As of now, Spectacles aren’t widely available.
The company has grown its popularity through many unique and innovative partnerships. It recently partnered with the BBC for the release of the U.K.-based network’s Planet Earth II. Partnerships outside of the U.S. will be key as the company tries to expand and grow Snapchat’s user base.
Snap is set to issue only nonvoting shares come March. Despite Snap’s experienced leadership team, Spiegel and co-founder and CTO Bobby Murphy will maintain a vast majority of the company’s voting shares when it goes public.
Spiegel, 26, and Murphy, 28, currently hold roughly 90% of the voting shares. If either were to die, or become unable to perform his role, the other could control almost all of the voting power.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>