For all the hype of a relatively new social media platform coming to market, never have views been more divided than over the now-you-see-it-now-you-don’t Snapchat. And that doesn’t bode too well for a company whose IPO is this week.
Snap Inc. (NYSE:SNAP), the parent company of photo messaging app Snapchat, is expected to begin trading on March 2. Snap, which has rebranded itself a “camera company,” said it plans to raise up to $3.2bn when its prospective valuation is placed at $25bn.
As such, it will become one of the biggest tech IPOs ever and certainly the most-anticipated since China’s Alibaba in 2014.
The audience for Snapchat isn’t huge at 161mln daily users. But given as 77% of UK users, for example, were found to be over the age of 18 years, nor is it a teenage craze.
But for this company which launched in 2011, the product itself – forget just the valuation – is what makes or breaks it.
Look at Blackberry (NASDAQ:BBRY). A company with ideas that in the end had to give up the jewel of handset manufacture as it became out of vogue.
The fundamental problem with Snapchat is that it is a quick flick media. You post images which later vanish. There have already been concerns about what kind of content can end up on there. Not only are there legitimate concerns about obscene content uploaded without the consent of the person in the viewfinder, but there are potential risks of terrorist cells using it to share instant images for communications which later vanish.
If you think Snap’s going to defy Facebook and be a success like Facebook, perhaps even replacing it as the front runner social media platform then sure you might want to buy it, even at the more than $22bn valuation implied by the top of its $14-$16 per share price range.
You might even tear a leaf out of Facebook’s experience, and snap up Snapchat later, if the market stumbles on IPO day, as it did for Facebook.
Certainly, there is no reason to suppose that user growth will stall like Twitter’s in the past two years. Snapchat is a simpler product to master. It’s simplicity, could also be its downfall if others manage to replicate its functionality and usurp users.
But assuming they won’t, it could well prove to be a bumper IPO.
Yes it did lose money last year, to the tune of $514.6mln on sales of $404.5mln. But Snap also has at least the prospect of taking on new users that don’t impact on costs. Server space is cheap and the firm can scale, which means it could potentially increase its profitability in future years.
Snap will rely on mobile web advertising revenue because most of the snapping takes place on smartphones. And anyway smartphones and tablets are the portables killing off laptops and other more sedentary devices like desktops.
Snap generated just $1.05 in fourth-quarter revenue per user compared with $4.83 at Facebook. But that’s more an indication of the opportunity, not the limit.
Meanwhile, because the product is simple to understand, it is also a Godsend for advertisers.
In any new medium, the question is whether it naturally supports advertising. Google worked immediately because marketers knew people used search to buy stuff.
So while Snapchat needs to generate user growth it also needs to deepen the advertising experience, and that could be what saves it from turning into, a ghost.