By Cody Laska,
Money and Investing Writer
Six years removed from hitting the app store, the 10 second-and under messaging service Snapchat will be hitting Wall Street with one of the largest IPOs in years.
Snap, Snapchat’s parent company, currently holds 41 percent of the 18 to 34 market as daily user’s total roughly 150 million people world-wide. With Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) as the lead underwriters, the current valuation is between $20 and $25 billion – one of the largest tech offerings in the history of the United States.
Snap will not be going public as a “communication” or even an “internet company”, rather it will be launching as a “camera company” given that their entire business model is based around the high-powered camera built into all smartphones; this is further proven by the Snap Spectacles which are sunglasses that have the ability to take pictures.
But beyond physical hardware Snapchat still serves as an important marketing frontier with updates that continue to provide more options for companies to utilize.
As an example Taco Bell paid between $550,000 and $800,000 to apply an augmented reality filter that served to promote their new “Diablo” sauce. If users remember this filter, Taco Bell essentially paid around half a million dollars for people to turn themselves into a nightmare inducing human-taco hybrid.
Even though Snap appears to be a giant able to compete with Facebook (NASDAQ: FB) right now and potentially Google (NASDAQ: GOOGL) down the road, it is still an underdog.
Despite its recent success generating advertising, Facebook and Google still own 58 percent of all digital advertising in the United States; this is in terms of both growth and market share. Agencies have still not fully embraced Snapchat as a viable add option with the highest buyer spending $60 million in 2016 and expected to spend $170 million in 2017. Compared to the one billion that was spent on Facebook there is no competition.
But there is hope yet that Snap will be the David to overtake the Goliaths of the tech industry as demonstrated by its user numbers: from its creation in 2011 to its on year anniversary in 2012, its user base grew by 1,000 percent daily.
The average user opens the app 18 times a day and total message traffic is around two and a half billion. This user base, coupled with annual revenue growing around 7 fold from $58.7 million at end of year 2015 to $404.5 million end of year 2016, shows that while Facebook and Google have size, Snap has speed.
Whether Snap will be able to keep up this almost incredulous rise will have to be seen down the road. If Snap CEO Evan Speigel decides to follow in Google’s footsteps and attempt to capture more ad revenue he will risk alienating or even losing his user base; something that would spell death Snapchat.
But if he chooses to follow the other path and maintain Snapchat as a social media platform, following in Facebook’s footsteps, he will have to find a way to solidify his market share from being overtaken by a different fad such as a new social media platform that has yet to be seen.
He also needs to work out how to fight off Facebook copying updates and applying them to Instagram; see Snapchat stories and Instagram stories.
All in all in, Snapchat is on the fast pace to have a very successful IPO launch and remain one of the power players in the social media space. Whether or not they will be able to maintain that role will have to be seen.
A version of this article appeared in the Tuesday, February 7th print edition.
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