Summary
Snapchat’s impressive recent growth may not be able to offset its history of losses.
The platform relies heavily on advertising growth and would need to compete with the likes of Facebook and Google for ad revenues.
Slowing user growth and retention could also signal a shift in Snapchat’s popularity.
By Richard Saintvilus
Snap Inc. (Pending:SNAP) the parent company of popular messaging app Snapchat, recently officially filed for its initial public offering. Calling itself a “camera company,” Snapchat, which boasts a private market valuation of $17.8 billion, has ambitious plans to raise some $3 billion from the offering — a figure which some analysts call merely a placeholder number for a far greater goal.
Don’t Make Snap Decisions
Estimates suggest this offering to value the company between $20 billion and $22 billion, according to MarketWatch. But should retail investors, who the company says will have no voting rights, buy into the IPO? Just as important, given the recent IPO lemons we’ve seen from the likes of GoPro (NASDAQ:GPRO) — another camera company — Snapchat investors must consider the bigger picture.
According to its recent filing, Snapchat has made considerable progress in terms of monetizing its core ephemeral photo- and video-sharing app, which had 158 million daily active users at the end of 2016 for an average of 2.5 billion “snaps” created per day. Aside from the ads posted on its photo-sharing platform, the company makes money from content created by third-party channels such as news organizations. And to better diversify its revenue stream, Snapchat recently launched hardware called Spectacles and has since implemented a payment feature called Snapcash.
Too Many Things Must Go Right
The company, which lists — among others — Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL), Twitter (NYSE:TWTR) and Apple (NASDAQ:AAPL) as competitors, said revenue surged to $404.5 million from just $58.7 million in 2015. Notably, that figure surpassed the company’s own target range of $300 million to $350 million. Just as impressive, Snapchat’s average revenue per user (ARPU), a closely-watched metric that denotes the strength of the business, grew to $1.05 in the fourth quarter, surpassing the previous…