At some point this week, Snapchat parent company Snap will publicly file its initial public offering, having originally filed confidentially in November. The documents that businesses file with the US Securities and Exchange Commission are long, sprawling tomes, meant to provide potential investors with the information they would need to decide whether to buy shares, as well as when they might reasonably expect some sort of return.
These documents don’t generally make for easy reading, so here a few questions to help guide you through Snap’s. At least these are questions we hope their filing will answer.
Is Snap more than just Snapchat? Is there anything else beyond the ephemeral-messaging app? What are the company’s plans to grow additional revenue streams and not fall into the trap of leaning too heavily on a single product or idea that, once replaced by a new fad or offered more cheaply by a competitor, will no longer keep them afloat?
Facebook’s mission is to “connect the world,” and Google’s (now Alphabet’s) is to “organize the world’s information and make it universally accessible and useful.” For both companies, these mission statements have manifested themselves in ways beyond their original product ideas. Facebook owns a virtual-reality company, and Google produces the most popular mobile operating system in the world, for example. (A letter from Google’s founders, released around the time of its IPO, also gave rise to the infamous “Don’t be evil” mantra.) Hopefully Snap’s IPO will tell us more about the company’s goals.
Snap’s IPO will also provide information on the organizational structure of the company, and who owns what. How much of Snap do CEO Evan Speigel and co-founder Bobby Murphy own? How much is controlled by venture capitalists, and how much by the banks that underwrote the IPO?
The only indication we’ve had as to Snap’s grander designs was when the company announced plans to reorganize itself (paywall) into a holding company. Snapchat and video-recording glasses Spectacles became two separate entities underneath the Snap umbrella. At the time, Snap’s new website said it was a “camera company” that believes “reinventing the camera represents our greatest opportunity to improve the way people live and communicate.”
To date, the company’s most high-profile product has been camera software, rather than actual cameras, but the reorg could indicate that Snap is looking to move further into consumer electronics. The company has apparently looked into a range of hardware companies, including the failed Lily drone, in an effort to keep users snapping selfies in new and interesting ways. Look for indication in Snap’s filing as to the direction of the company and its camera-reinventing ways.
Like most startups, Snap hasn’t really given any indication of how much revenue it generates, or how profitable it is. It’s been reported that the company planned for revenue between $300 million and $350 million in 2016, which would put it at about 0.05% of what Facebook generated last quarter. Look for the filing to provide some information on where Snap’s revenue comes from, and the split between its advertising business—the video ads it sells that run between Snapchat stories, as well as the sponsored graphics and filters it sells for users to overlay on their snaps—and any other sources of income, such as Spectacles. Few advertising partners are spending large portions of their advertising budgets on Snapchat as of yet, according to Mashable, with many just spending “hundreds of thousands of dollars”—rather than the millions spent on Google, Facebook, and traditional advertising channels.
Although its IPO would value the company (paywall) at about $25 billion, Snap is likely not pulling in a lot of cash right now. The company’s filings should provide information on how it plans to expand in the next few years, and any potential pitfalls for its business. The filings will likely expose what metrics the company feels are important, or at least those it believes investors should pay attention to. For other social networks, that has been active users—both Twitter and Facebook charted their successes against how many people used their services on a monthly basis. It’s entirely possible that Snap will focus on this too, but there could be other measurements that it feels are important, such as the time its users spend on Snapchat each day, the number of times per day they check the app, or how often they click on ads. Snapchat users are more engaged with the app than those of other social networks, according to Business Insider,
This one should be relatively simple—other social networks that revolve around messaging and imaging, such as Facebook, Instagram, and Twitter—but it’ll be interesting to see who Snap considers its competitors. The company is, after all, a “camera” company. Perhaps it sees Nikon or Canon as competitors, or hardware companies with cameras in their products, like GoPro or Apple.
The filing should give an indication as to the vision for the direction of Snap, but it’ll also help investors determine what the company is up against. Facebook and Google are behemoths, with market capitalizations of over $375 billion and $550 billion, respectively—how likely is it that Snap will be able to chip away at their advertising businesses in the near future, if marketers are hesitant to commit large sums today?
In the unfortunate event that Snap does not succeed in stealing marketing dollars away from Google or Facebook, or can’t blaze its own trail, investors will want to know how much it costs to run the business, and how much money is in the bank. This helps calculate the “burn rate”—a metric to determine when the company might, based on expenses, run out of money and disappear, just like its messages.