Snapchats Initial public offering could come as soon as March and value Snapchat at $20bn to $25bn, making it one of the biggest technology offerings in recent years, having filed confidentially with the US Securities and Exchange Commission (SEC) for an initial public offering (IPO), sources familiar with the situation have stated.
The filing puts the Venice, California-based company one step further towards its IPO, which sources say could come as soon as March and value it at $20bn to $25bn, making it one of the biggest technology offerings in recent years.Under America’s Jumpstart Our Business Startups Act, companies with less than $1bn in revenue can secretly file for an IPO, allowing them to quietly test investor appetite while keeping financials confidential.
The sources asked not to be named because the information is private. A spokesman for Snap, Snapchat’s parent company, declined to comment. Snapchat started in 2012 as a free mobile app that allows users to send photos that vanish within seconds. It has more than 100 million active users, about 60% of whom are aged 13 to 24, making it an attractive way for advertisers to reach millennials.
Snapchat, awash in venture funding, raised $1.81bn in May, which valued it at about $20bn, media reports said at the time.But investors worry that Snapchat’s advertising sales, which began last October, is the company’s only significant revenue source.
Here are some of the top questions about Snap that investors will be looking for answers to:
Revenue and Losses: As a privately held company, Snap has yet to disclose its revenue numbers or whether it’s even profitable. The company reportedly told its private investorsthat it expected to make $250 million to $350 million in advertising revenue in 2016. A Tuesday report from eMarketer predicted that Snap would generate $935.5 million in ad revenue in 2017, a 155% increase over last year. If eMarketer’s prediction prove accurate, an IPO that values the company at $25 billion would be nearly 25 times its projected revenue numbers. (A much smaller chunk of Snap’s revenue will be Spectacles, the camera-equipped sunglasses it started selling in the fall. It will be interesting to see if Snap breaks out its revenue from Spectacles or not.)
Share ownership: Snap’s public offering filing will reveal the exact stakes held by its biggest shareholders for the first time, which will give insight into who holds the power. According to The Wall Street Journal, Spiegel and cofounder Bobby Murphy will take a page out of Mark Zuckerberg’s playbook and “hold more than 70% of the voting power despite owning roughly 45% of the stock.” The Journal has also reported that new investors will be offered shares with zero voting rights.
User numbers: The last time Snapchat’s user numbers leaked was in June 2016, when Bloomberg reported that the app had 150 million daily users. But Facebook-owned Instagram amassed the same number of daily users for its Snapchat-look-a-like feature in just five months. Bloomberg reports that Snap has been touting its high user engagement (like time spent) in private pitches to analysts and bankers, and the S1 should signal how much the company plans to tout high engagement vs. user base growth going forward.
Life after Millennials: Snapchat is all the rage among young millennial users, but the app is comically frustrating to use for people over 40. If Snap wants to convince Wall Street that it has a bright future beyond the millennial niche, it will need to give a sense of how big its total addressable market can be.
Competitors: Snap’s S1 should reveal who it sees as competitors in the industry, a topic that its management has so far talked very little about publicly. The Wall Street Journal reported that Snap has made an effort to not compare itself to Twitter in pitches to investors, which makes sense given how Twitter was never able to meet Wall Street’s expectations of growth after going public. The company has also been careful to not draw comparisons to Facebook with its internal and external messaging. But given how aggressively Facebook has copied Snapchat’s core features in recent months, Snap will be hard pressed to not acknowledge Zuckerberg and co. as a serious rival.
Mission: In September, Snapchat rebranded itself to Snap Inc. and started calling itself “a camera company.” It’s mission statement now says, “We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate. Our products empower people to express themselves, live in the moment, learn about the world, and have fun together.” Spiegel could elaborate on that mission in the company’s S-1 filing. It will also be interesting to see how much hardware products like Spectacles play a part in that mission’s future.
Instagram Vs Snapchat
“Everyone is posting way less. Some are not posting at all anymore” on Snapchat, says the CEO of a social content production studio about the dozen social media stars they represent.
Several sources refused to be named in print for fear of retaliation from Snapchat or because they weren’t authorized to disclose client data. But across the social content production firm’s stars, the CEO says there’s been an average decline in Snapchat Stories views of 20 to 30 percent from August until mid-January.
In the 25 weeks since launch, Instagram Stories has reached 150 million daily users. That’s the same number of users that Snapchat’s whole app reportedly hit around June 2016, after seeing swift growth from 110 million daily users in December 2015, Bloomberg reported. Snapchat hasn’t announced a higher number since, nor has one leaked, despite it trying to impress potential investors during its current pre-IPO roadshow.
Snapchat is expected to publicly file to IPO this week, and that might include some larger stats. But the consensus from our sources is that they’d be higher if not for Instagram Stories, and Snapchat’s long-term growth, especially internationally, will be hindered by the competition.
Analytics Provider Shows Widespread Snapchat Decline
“Overall, from August to November 2016, the average unique viewers per Snapchat Story has decreased about 40%” says Nick Cicero, CEO of creative studio and social video analytics platform Delmondo. His company analyzed 21,500 Snapchat Stories to discover the steep decline.
Meanwhile, influencer marketing platform TheAmplify’s CEO Justin Rezvani says “On average our influencer community is seeing 28 percent higher open rate on Instagram than Snapchat”, referring to view count.
As for downloads, App Annie shows Snapchat saw a big drop right when Instagram Stories launched at the beginning of August. It fell to its lowest ranking all year, #11, after hovering in the top 3 for the first half of 2016. It’s unclear why it bounced back at the end of October, but it’s begun to slip again. [Update: Instagram experienced a dip in August download ranks too, which we’re investigating.]
Removing Auto-Advance Added Friction To Snapchat
One thing that’s important to know as we review these reports is that Snapchat removed its Auto-Advance feature on October 7th, so users could no longer instantly watch every Story in their list in a row. Instead they had to manually select Stories to load as an ad hoc Story Playlist (pictured here), though there’s a little-known way to select all Stories with by tapping the triangular dot button.
This change should have directly caused some drop in views since Snapchat users aren’t being shown Stories they’re less interested in, which they might have fast-forwarded through while still triggering view counts. Snapchat marketing and analytics company Mish Guru’s CEO Thomas Harding says that in October when Snapchat removed Auto-Advance, a selection of its client accounts that have been posting consistently saw an immediate 9.64% drop in views.
You could argue that the remaining views are more intentional and therefore more valuable. But the change also made it less convenient to lean back and watch a day’s worth of Snapchat the way you used to on Snapchat and can on Instagram thanks to its Auto-Advance feature. And several sources think that’s leading some users to open Snapchat less overall.
Stars See Snapchat Views Down 15 to 30 Percent
Social talent agent Charlie Buffin who represents some former Vine stars says one of his top creators was averaging 330,000 views per day on Snapchat in late 2015 until June 2016. But by December, they were receiving 205,000 to 250,000 views per day.
“It is clear to us that regular users’ Snapchat usage/engagement have gone down significantly since the release of Instagram Stories” writes Buffin. He also noted that “Snapchat removing the Auto-Advance feature has affected the natural ‘binge-watching experience’ for consumers, which is really cutting into views for creators.” But Snap Inc doesn’t seem to care. “Snapchat has always remained distant from its creator community, which is not a strong move for the company” Buffin concluded.
One star, Hannah Stocking, saw her Snapchat Stories views fall from 150,000 on August 16th to 90,000 on January 17th. That’s despite massive growth on other platforms like YouTube, and Instagram where she rose from 1.2 million to 4.3 million followers in the same time frame. “Her Instagram Story numbers are growing faster than anything right now” says John Shahidi, founder Shots Studios, the Justin Bieber-backed selfie app and video creation startup that represents Stocking.
Media marketing and business development agency Fighter Interactive’s CEO Kwasi Asare tells me “Snapchat opens have gone down a minimum of 15 percent for some big social media stars.” He sees the removal of Auto-Advance as mistake, saying “Snapchat messed up by letting people choose whose stories they view individually. Instagram has more of a flow where it allows you to watch the stories of everyone you’re following.
Asare also believes Instagram’s clone has quickly risen to equal status with teens, noting that “Most kids are starting to post on Instagram or Snapchat, and then post on the one they didn’t post on first.”
Influencers Crave Instagram’s Reach
Social talent media company Galore’s CEO Mike Albanese says “Influencers that were late to build an audience on Snapchat pretty much abandoned the platform because it was so much easier for them to reach more people through their existing audience on Instagram Stories.”
That said, he was the only source we asked who said that they’d seen growth in Snapchat views, though that was for “top Snapchat influencers” like models Val Mercado and Sahara Ray, and actress Ava Allen who he says pour a ton of effort into Snapchat and heavily promote their account through their other social presences. But he believes “there are less Snapchat Stories being published on a daily basis overall versus August of last year.”
A leading social media talent company’s co-founder tells me that amongst the stars they work with, “Almost all of them are down about 20 to 25 percent on Snapchat” since August.” One of their creators was seeing 75,000 opens per Story in August, and only 50,000 now. Another went from 50,000 to 30,000. Meanwhile, the stars are seeing 6 to 10 percent of their Instagram followers opening their Instagram Stories each day, which the co-founder called “really f*cking high”.
“Marketers are dedicating more resources to Instagram because you can’t grow on Snapchat. Now there’s a lot of campaigns we don’t even need to do on Snapchat.”, they say. “The only way to grow is from [cross-promoting on] YouTube or Instagram. Snapchat is making some of the same mistakes as Vine. They aren’t embracing creators. They want to be private messaging.” In contrast, Instagram promotes social media stars and helps them grow their Stories views by featuring them on its Explore tab that Snapchat lacks.
Then they gave perhaps the most damning quote we heard. “Everyone has forgotten that Instagram Stories is a Snapchat clone.”
Raining on Snapchat’s IPO Parade
These industry reports build on a mountain of anecdotal evidence about Instagram stealing Snapchat users that I’ve heard online and from my network, and seen in my own usage and view counts.
It seems Facebook has finally found way to challenge Snapchat after multiple failed attempts since it turned down the social giant’s first acquisition offer in 2012. Poke, Slingshot, Bolt, and Flash all flopped as standalone apps, while baking Snapchat’s best features deep inside Facebook seemed to have little effect.
But by putting a Snapchat clone front and center atop Instagram’s feed, the Facebook family of apps discovered a way to make its version more convenient to use than the original. And emboldened by Instagram’s success, now Facebook is testing similarly designed Snapchat clones in its main app as Facebook Stories, and its chat apps as Messenger Day and WhatsApp Status.
Snapchat lovers are exporting and syndicating their Stories to Instagram for extra reach. Those who’d only recently gotten into posting Snapchat Stories are finding it easier to watch and share on Instagram where they already spend time and have built a social graph. And people who’d never tried Snapchat but were intrigued by Stories are finding Instagram is good enough that there’s no need to sign-up for Snapchat.
It’s that last one that might be most threatening to Snap Inc’s IPO. We’re already seeing how Instagram is eating up Snapchat usage, reducing the Stories views it depends on to drive ad revenue. Yet what matters to Wall Street is growth potential. Ad-driven social networks need massive scale, which usually comes from international domination.
That can’t happen if Instagram, Facebook, Messenger, and WhatsApp deliver the Stories feature to foreign countries where Snapchat hasn’t gained traction already. Around 80 percent of Instagram’s 600 million monthly users are international. And if Instagram Stories continues on this trajectory, it could prove bigger than the app it copied.
As I wrote a week after the launch, Instagram Stories castrated Snapchat, even if it can’t kill it. Snapchat will continue to have a lively user base, though Instagram may inhibit its continued expansion.
Reports from social media celebrity managers and analytics companies that work with big accounts may present a more dire outlook than what’s going on with average teens on Snapchat. Kids under 25 in the US who are completely immersed in Snapchat might not stray. But Instagram may be convincing the 25 to 35-year olds who came of age on its app to stick around, while it’s swooping on international teens before Snapchat gets popular in their market. Plus, vanity dictates that people will share where they get the most views, and many people have spent years longer building their Instagram audience.
Going Public With A Different Story
With its future in broadcast social media under fire, Snap Inc may need to tell a different story for its IPO. At the least, it might have to concentrate on touting its average revenue per user rather than its scale.
It has spent the past quarter repositioning itself as “a camera company” that makes hardware like its Spectacles camera-sunglasses. It’s also tried to double-down on the app’s first feature, disappearing private messaging, by adding a groups feature and improved navigation. But scrounging together hardware profits and monetizing chat directly can be quite challenging.
In six months, the game has changed for Snapchat, and not in its favor. Once the undisputed king of cool amongst Western teenagers with the potential to disrupt the world’s biggest social network, it’s now in danger of becoming just one of several popular apps for ephemeral storytelling.
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