Snapchat’s S-1 filing with the SEC revealed lots of information about the company and its business. Here are 10 of the most interesting titbits.
Snapchat’s revenue is pretty big and getting bigger, but its losses are pretty big too
Snapchat is generating just over $400m in revenue annually, up from just under $59m in 2015, but it lost $514m last year, up from nearly $373m in 2015. While such losses are not uncommon for fast-growing consumer digital media company, and Snapchat has raised billions in capital from investors, the company’s S-1 warns that it ”may never achieve or maintain profitability.”
That standard risk disclosure language would probably be easier to overlook if it wasn’t for the fact that Facebook’s Instagram seems to be taking away some of Snapchat’s shine.
Snapchat’s younger users are more engaged, but they could be more fickle
Snapchat’s S-1 revealed that “the majority of our users are 18-34 years old” and this group is the most highly engaged…
For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period.
While its young demographic makes Snapchat an especially ideal platform for many advertisers, the company acknowledges that “this demographic may be less brand loyal and more likely to follow trends than other demographics.”
Snapchat has 158m DAUs…
In December, 158m people on average logged onto Snapchat every day globally. That’s up from 110m in December 2015.
…but user growth is slowing
Is Snapchat the next Facebook, or the next Twitter? The company’s ability to continue growing its user base will largely determine the answer to that. While Snapchat experienced significant growth earlier in the year, growth has slowed considerably since Instagram launched Stories, highlighting the challenges Snapchat may face as Facebook targets its upstart competitor.
Snapchat net growth in millions. Crazy spike in the first two quarters. Then Instagram launched Stories in August. pic.twitter.com/RlZLOuCsAc
— Ben Sandofsky (@sandofsky) February 2, 2017
Snapchat wants to reinvent the camera
How can Snapchat ward off Facebook? The company’s S-1 suggests that Snapchat believes it’s not a social network or mobile app. Instead, the S-1 states, “Snap Inc. is a camera company.” It goes on…
We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate. Our products empower people to express themselves, live in the moment, learn about the world, and have fun together.
In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones. This is because images created by smartphone cameras contain more context and richer information than other forms of input like text entered on a keyboard. This means that we are willing to take risks in an attempt to create innovative and different camera products that are better able to reflect and improve our life experiences.
In other words, Snapchat appears to be betting the farm on its ability to out-innovate other companies that are building cameras and camera-centric products and services, suggesting that Spectacles is just the first product in a physical product pipeline.
In fact, the S-1 alerts prospective investors to the fact that they should expect Snapchat to spend lots of money on these efforts…
Many of the products we create leverage new technologies and may be considerably different from what is already available. This means that we often make large investments and take substantial risks to develop and launch them.
Some of our products have high production costs and long development timelines, and we expect to see an increase in our costs and expenses due to the launch of Spectacles and future capital-intensive projects.
It’s all about advertising
Despite the fact that Snapchat is calling itself a “camera company,” it generates almost all of its revenue today from advertising and will for the foreseeable future. Like Facebook in its earlier days, the company says that it is focused on creating great products that users want to engage in, and that it might not monetize those products for “a long time.”
But when it does decide to monetize, expect Snapchat to follow common models. For instance, the company notes that it allows advertisers to purchase geo-filters in a self-service fashion, and to purchase ads through an API.
Snapchat’s ARPU lags Facebook’s
In Q4 2016, Facebook’s average revenue per user (ARPU) in North America approached $20 per user. For comparison, in the same quarter, Snapchat’s North American users had an ARPU of just $2.15.
Snapchat’s ad business is obviously much more nascent, and it’s worth pointing out that Facebook’s ARPU for North American users was approximately $5 when it went public. So prospective Snapchat investors will need to decide whether Snapchat will be able to grow ARPU the way Facebook did, or not.
Snapchat is spending a ton of money with Google
Snapchat’s founders, investors and many of its employees will make lots of money when the company goes public, but one of the biggest beneficiaries of Snapchat’s success is Google.
According to Snapchat’s S-1, ”We have committed to spend $2bn with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google, some of which do not have an alternative in the market.”
You know what’s cool? $25bn
Snapchat is aiming to go public at a valuation of $25bn, raising $3bn in the process. That’s quite a bit lower than Facebook’s IPO, which valued the social networking giant at more than $100bn, but it’s still a significant valuation that will make Snapchat’s IPO the biggest consumer tech IPO by valuation in years.
Public shareholders won’t have much of a say in Snapchat’s business
Will investors be eager to invest in Snapchat despite the losses, competitive risks and questions over what the company actually is? Interestingly, those considerations might prove to be less important than the fact that the class A shares the company is offering to the public will have no voting rights. That means investors who own these shares of the company will effectively have no ability to influence the company’s decisions.
While corporate structures that give founders and management effective control over their companies are more and more common in big tech, a number of observers have noted the fact that apparently no other company has gone public and not offered shares with voting rights, so Snapchat will be the first to test the market in this way.
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