Fun Tidbits from the Snap Inc. SEC Filing

Snaps SEC filing offers a glimpse into the company, their challenges, their risks, their unconventional capital structure. Let’s get started!

Heres a cool graph which was included in the filing.

• From launch to 1k Daily Active Users took less than a year
• About 1 year after hitting 1k DAU, Snap hit 1 million DAU, WOW!
• It took another ~1.5 years to hit 50 million DAU.
• It took another ~2 years to hit 150 million DAU

When all is said and done, Snap went from launching in mid 2011 to hitting 150 million DAU 5 years later. That is some crazy growth!

Let’s not forget their name changes during this period:

Picaboo -> Snapchat

Not to be confused with their company name changes:

Future Freshman LLC -> Toyopa Group LLC -> Snapchat Inc. -> Snap Inc.

Based on the growth trajectory, the two best decisions Snap made was to introduce Video and Lenses.

Thats a cool graph and all but what other fun stuff is in the SEC filing?

Google Cloud!

Pretty much all of Snap runs on Google Cloud, so much so that it is outlined as a huge risk in their filings:

We rely on Google Cloud for the vast majority of our computing, storage, bandwidth, and other services. Any disruption of or interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our business.

It would be extremely difficult for Snap to migrate their entire company from Google to any other service. They also note that they have committed $2 billion toward Google Cloud over the next 5 years! Then they go on to list all the ways Google could screw them and destroy their company. While they are all pretty interesting, to sum it up, Google could cancel their service and the Snapchat app would cease to function (SUPER UNLIKELY).

The two co-founders will continue to maintain full control of the business after Snap goes public.

This one is a little bit difficult to understand but hang in there, it is worth it! Snap has 3 different types of company stock, A, B, and C. A stock gets 0 voting power, this is also the stock which will be offered to the public! B will have some voting power 1 stock = 1 vote, and C will have most of the power, 1 stock = 10 votes.

Basically what that all means is that Evan Spiegel and Robert Murphy will have the majority of the voting power to the point where they, combined, would be able to make any decision. So what’s the big deal? Well, Snap outlined the big deal itself in its own filing:

to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange. We cannot predict whether this structure, combined with the concentrated control by Mr. Spiegel and Mr. Murphy, will result in a lower trading price or greater fluctuations in the trading price of our Class A common stock as compared to the market price were we to sell voting stock in this offering, or will result in adverse publicity or other adverse consequences.

Most Revenue is from advertising, most users are on iOS.

Two major risk factors outlined in the filing. The first comes in the form of revenue. Almost all of Snap’s cash comes from advertising. While they claim to be a camera company, the bottom line is that they are currently an advertising company. They will be competing with Google, Facebook, Twitter, etc. To be successful, they must show advertisers that they get the most bang for the buck on Snap.

We generate substantially all our revenue from advertising. The failure to attract new advertisers, the loss of advertisers, or a reduction in how much they spend, could seriously harm our business.

A second major risk is the reliance of Snapchat on the iOS platform. They rely on Android as well but the majority of users are on iOS. Snap must work hard to capture the Android market, if there is a shift off of iOS and onto Android or anther system altogether, Snap could see its flagship app’s user base dissolve.

The majority of our user engagement is on smartphones with iOS operating systems. As a result, although our products work with Android mobile devices, we have prioritized development of our products to operate with iOS operating systems rather than smartphones with Android operating systems. To continue growth in user engagement, we will need to prioritize development of our products to operate on smartphones with Android operating systems.

Snap inc. is not profitable and may never be.

We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.

While Snap’s Revenue have increased, so have their operating expenses:

• 2015: $58.66 Million Revenue, $372.89 Million Loss
• 2016: $404.48 Million Revenue, $514.64 Million Loss

Snap anticipates that their operating expenses will continue to grow as they become a public company.

We expect our operating expenses to increase in the future as we expand our operations. Furthermore, as a public company, we will incur additional legal, accounting, and other expenses that we did not incur as a private company.

Some other quick facts:

• Proposed ticker symbol: SNAP
• 158 Million people use Snapchat every day
• 2.5 Billion snaps are created per day

You can read the filing yourself here.

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