SAN FRANCISCO — Snapchat may have been built on disappearing messages. But as the social media darling hovers on the cusp of becoming a public company, its parent is trying to show how durable its business is.
In its first public prospectus, Snap Inc. disclosed on Thursday that it had built a nearly $405 million advertising business in just over two years. While the filing does not indicate a price for an initial public offering, Snap is expected to seek a market valuation of more than $20 billion from investors.
In the filing, Snap said that it wanted to raise $3 billion, an estimate meant to help determine registration fees. The company may seek as much as $4 billion, a figure that would make it one of the biggest tech offerings in United States history, according to Standard & Poor’s Global Market Intelligence.
Snap filed confidentially to go public with the Securities and Exchange Commission late last year. Making the filing public was one of the company’s final steps before it begins trading on the New York Stock Exchange under the ticker symbol SNAP. If all goes well, the offering is expected to furnish its founders and early investors with a windfall.
Within weeks, Snap executives will begin formally meeting with prospective investors, along with the company’s lead underwriters at Morgan Stanley and Goldman Sachs. The pitch is straightforward: Snap is one of technology’s biggest success stories of late, and it is heading to the public markets amid a relative dearth of noteworthy offerings.
Still, company executives are expected to face questions about whether Snap can maintain its enormous growth rate, particularly as Facebook’s Instagram unit copies many of Snapchat’s major features. Potential investors may question the slowing growth rate of daily users, though Snap will probably argue that it will keep adding new products, which will accelerate growth.
Others in Snap’s class of popular start-ups — like Uber, Airbnb and Dropbox — are not expected to begin selling stock on public markets for months or even years, as they are tied up with legal issues or are overhauling their businesses.
The filing on Thursday formally pulls back the curtain on Snap’s meteoric growth. From 2011 to 2012, the number of people using the Snapchat app every day grew to one million from 1,000. By the end of last year, an average of 158 million people were using the app daily.
The average user opens the app more than 18 times a day, according to the prospectus, and the service’s users send more than 2.5 billion messages and images each day.
Snap demonstrated in the prospectus that its business model is viable. Its annual revenue grew by about seven times in just a year, to $404.5 million last year, from $58.7 million in 2015.
Martin Sorrell, chief executive of advertising conglomerate WPP, recently estimated that his company spent $90 million on Snapchat last year. He called Snap a “rogue elephant,” even as WPP deployed $5 billion to Google and $1.7 billion to Facebook in 2016.
“I would say Snapchat is the one thing that people look at and say, ‘Maybe that’s a third force that can counter the domination,’”…