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Snap Inc. (SNAP - Free Report) , the parent company of the photo-disappearing app, just had one of the biggest tech IPOs in the recent years. The company was originally priced at $17 per share but closed the day up 44% to $24.48 per share. With all the anticipation hanging heavy on its shoulders, let’s look at how Snap makes money.
The company, originally named Snapchat, Inc., was founded in September 2011 by Evan Spiegel and Bobby Murphy. They rebranded the company to Snap to include their new product, Spectacles, in Sept. 2014. Instead of calling themselves a social media company, Snap pitches itself as a camera company.
Advertising
Like Facebook and its photo-sharing app, Instagram, advertising is the main source of revenues. However, unlike Facebook and Instagram, Snapchat doesn’t just distribute the ads into users’ newsfeed; ads are also part of their features.
The Los Angeles-based company generates their revenue through these five ways: Lenses, Geo-filters, Stories, Discover and Spectacles.
When a user opens up the app to take a picture or video, the user is given the option to put an overlay filter on. Brands can pay to put their brand-related filter in Snapchat for users to use. In May 2016, 20th Century Fox (FOXA - Free Report) paid Snap to incorporate lenses featuring well-known comic characters of X-Men to promote their movie, “X-Men: Apocalypse.” The New York Times reported that the cost to takeover Snapchat lenses filter was unknown, but the usual cost to sponsor a lens is between $450,000 and $750,000.
Geo-filters operate similar as lenses. Businesses can pay Snap to have brand-specific location overlay that users can use on their picture or video.
Stories and Discover are where Snap delivers the content before they disappear after 24 hours. After users take their picture or video and edit with a lens or geo-filter, users can put the final product on his or her Story for their followers to see. Snap also goes through these snaps and puts them into one video feed, as well as put them on Discover. Discover allows brands to upload their own snaps in a video magazine form with ads in between for users to see.
Spectacles are a pair of sunglasses with a camera that automatically saves the picture or video to a user’s Snapchat Memories when it’s connected to the Wi-Fi. The camera in Spectacles is designed to mimic how humans actually see. Spectacles can be purchased online.
Bottom Line
Though Snap posted annual revenues of $404 million in 2016, which is a tremendous growth from $54 million a year ago, the company also posted a net loss of $514 million. While their IPO was a success, experts and analysts still question Snap’s ability to generate profit.
Snap looks to be the next Facebook but it seems like there is still a long way to go before Snaps can reach that stage. One main difference is the reach. Snap reported to have 158 million daily users while Facebook crushed that number with 845 million monthly users and 483 million daily users.
It is too early to say whether or not Snap will be the next Facebook or the next GoPro (GPRO - Free Report) . Snap certainly has the potential but it needs to branch out to more demographics. The potential growth of users is what Snap is selling to investors, as they experienced a 48% growth in users from 2016.
Snap’s stock is up 3% at $23.52 per share, just a little below its IPO price of $24.
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Here's How Snap Makes Most of Its Money
Snap Inc. (SNAP - Free Report) , the parent company of the photo-disappearing app, just had one of the biggest tech IPOs in the recent years. The company was originally priced at $17 per share but closed the day up 44% to $24.48 per share. With all the anticipation hanging heavy on its shoulders, let’s look at how Snap makes money.
The company, originally named Snapchat, Inc., was founded in September 2011 by Evan Spiegel and Bobby Murphy. They rebranded the company to Snap to include their new product, Spectacles, in Sept. 2014. Instead of calling themselves a social media company, Snap pitches itself as a camera company.
Advertising
Like Facebook and its photo-sharing app, Instagram, advertising is the main source of revenues. However, unlike Facebook and Instagram, Snapchat doesn’t just distribute the ads into users’ newsfeed; ads are also part of their features.
The Los Angeles-based company generates their revenue through these five ways: Lenses, Geo-filters, Stories, Discover and Spectacles.
When a user opens up the app to take a picture or video, the user is given the option to put an overlay filter on. Brands can pay to put their brand-related filter in Snapchat for users to use. In May 2016, 20th Century Fox (FOXA - Free Report) paid Snap to incorporate lenses featuring well-known comic characters of X-Men to promote their movie, “X-Men: Apocalypse.” The New York Times reported that the cost to takeover Snapchat lenses filter was unknown, but the usual cost to sponsor a lens is between $450,000 and $750,000.
Geo-filters operate similar as lenses. Businesses can pay Snap to have brand-specific location overlay that users can use on their picture or video.
Stories and Discover are where Snap delivers the content before they disappear after 24 hours. After users take their picture or video and edit with a lens or geo-filter, users can put the final product on his or her Story for their followers to see. Snap also goes through these snaps and puts them into one video feed, as well as put them on Discover. Discover allows brands to upload their own snaps in a video magazine form with ads in between for users to see.
Spectacles are a pair of sunglasses with a camera that automatically saves the picture or video to a user’s Snapchat Memories when it’s connected to the Wi-Fi. The camera in Spectacles is designed to mimic how humans actually see. Spectacles can be purchased online.
Bottom Line
Though Snap posted annual revenues of $404 million in 2016, which is a tremendous growth from $54 million a year ago, the company also posted a net loss of $514 million. While their IPO was a success, experts and analysts still question Snap’s ability to generate profit.
Snap looks to be the next Facebook but it seems like there is still a long way to go before Snaps can reach that stage. One main difference is the reach. Snap reported to have 158 million daily users while Facebook crushed that number with 845 million monthly users and 483 million daily users.
It is too early to say whether or not Snap will be the next Facebook or the next GoPro (GPRO - Free Report) . Snap certainly has the potential but it needs to branch out to more demographics. The potential growth of users is what Snap is selling to investors, as they experienced a 48% growth in users from 2016.
Snap’s stock is up 3% at $23.52 per share, just a little below its IPO price of $24.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>