Snapchat: Ready for IPO and Beyond!


Snapchat, the social media giant earlier this quarter announced Morgan and Stanley and Goldman Sachs as its leading underwriters for an IPO which could come as soon as March. The market has been unkind to tech investment this year with many analysts noting saturation in the market and a lack of innovation. US tech IPOs raised approximately $2.3 billion (as of Q3) compared to $5.2 billion over the same period in 2015. With the significant decline in tech investment an IPO might seem risky though, if Snapchat is to truly compete with Facebook and Instagram as an all round media platform they will need to raise more capital. Snapchat (valued at approximately $25 billion) show all signs of being the exception to 2016 norm of poorly performing tech IPOs and overtaking Facebook as the market leader in social media in the future. Whenever Snapchat does go to IPO in Q1 of 2017 expect to see significant gains in share price throughout 2017. Snap Inc. the parent company of Snapchat is here to stay!

Revolutionizing Social Media

You know you’re doing something right when huge tech corporations begin copying (almost all of) your ideas. Since its official launch in 2012 Facebook and Microsoft have been playing catch up with Stanford CEO Evan Spiegal.

What makes Snapchat so innovative is the manner in which it reinvigorated social media. The overall objective of social media has been to connect people and allow people to share experiences almost instantaneously. Snapchat envisioned that idea from the onset. Snapchat is a social ephemeral experience favoring photos and clips over effort requiring text. Engagement within social media is critical, and though Facebook and Twitter recognised the importance of images and video, they failed to capture personality and emotion in a way that allowed Snapchat did in the form of filters and customisation. Some have commented that these aspects of Snapchat’s essential features are a fad, many of us hated the Stories feature when it first emerged, however a Bloomberg report earlier in the year evidenced that Snapchat is now getting approximately 10 billion video views a day, with more than a third from its Stories feature. Around the same time Facebook reported a video count of 8 billion daily views, which is even less impressive when you consider the masses of people who watch video every day on their desktop. Snapchat is a mobile only platform.

With more and more people connecting on social media came the opportunity to reach new customers. Snapchat has become the free marketing outlet for my barber, my university and my local supermarket. The personal element at the heart of what Snapchat embodies allows marketer to pass on emotions and experience that just can’t be replicated with the use of some spam at the side of my newsfeed, or even more old-school….a billboard. Snapchat has had a lasting effect on the way goods are marketed, and will only strengthen with the increased influence of new features such as Spectacles.

Hardware

With December came the launch of Snapchat Spectacles,the next step in the Snapchat Story (see what I did there). In short, Specs will allow millions of people to do something that we are already doing…capturing short snippets of video to save or share with our friends and family. Just capturing better. The significance of this from an investors point of view is the ease with which Snapchat has shifted from software alone, to software supporting its own hardware. Google have tried to capture the point of view tech market for a while, most specifically with Google Glass which amounted to nothing really. Facebook and Twitter are yet to show any real breakthrough into the hardware industry, there are of course videos on Facebook hinting at a FacebookPhone, but nothing material as of yet has emerged. So once again Snapchat are leading the way in social media performance.

In fact, one might imagine that Snapchat have actually captured VR in a way we have not seen. As Specs develop we might see that we could live through our friends Snapchat Stories, as if we were actually there, after all isn't the whole idea of social media to capture and share moments with people? What better way to do this than to live through someone else’s moment.

Content and Revenue

As an investor in general never mind an investor in social media, my immediate focus would be revenue. Few believe that Snapchat is profitable at this stage. Gawker published a leaked income statement dating back to November 2014, which showed that the company generated just $2.1 million. Meanwhile the bottom line stood at approximately $128.4 million. Alarm bells anyone? To be entirely partial it did have cash on it’s balance sheet of $320.6 million.

Although Snapchat clearly has some revenue problems at the moment, as an investor interested in exposure to social media stock who thinks that revenue is the be all and end all…Snapchat still comes close to Facebook. Because of Snapchat’s appeal to the Millennial, Generation Z elders, and the parents who are trying to be cool, they know that ads and spam is bad. Instead the people at Snapchat have derived a winning formula. The way in which they make money makes the overall service better.

Snapchat offers brands different options for gaining exposure to young impulse buyers. Geofilters are set to display branded images when the user is in a certain location for example the Mcdonald’s filters available in the US when you are close to a Mcdonald’s…and let’s be honest, you are never too far. In January 2015 Snapchat introduced its Discover feature allowing media partners such as CNN and ESPN to publish in the form of a story. Re/code reported that Snapchat was charging these partners $100 dollars per thousand views. In this way Snapchat made money, while I found out the what was going on in the world on Sky News inbetween sending my friends selfies of me eating cereal. Everyone wins.

Of course there are still issues to iron out, Snapchat is not perfect. Many have cited it as being a platform with a reputation for being the facilitator of sexting and distribution of hate porn. This is something that management must address in the near future. Snapchat also faces new found competition from Instagram in the Stories market, offering users the ability to make purchases and link away from the app. Perhaps Snapchat could be the first social media platform to offer money transfer facilities, after all we scan to add people, why not scan to pay?

The following will only serve to enhance the overall network if Snapchat can keep reinventing itself and staying relevant with high profile users like Taylor Swift and Lewis Hamilton, they might even get the Pope on board. Who knows?