Snapchat owner files for IPO

Jon Howard
February 3, 2017

Snap reported having 158 million daily active users as of December 31, bringing in revenues of $404.5 million for 2016, a huge jump from $58.7 million in 2015. However, costs have risen at a higher rate and net losses have risen from $372.9 million to $514.6 million. If the figure remains, it would become the largest United States technology IPO since Facebook in 2012. Look for shares to trade on the New York Stock Exchange under the ticker symbol SNAP.

The big question for investors is, will Snap be another Facebook - a can't-be-missed opportunity?

The IPO has hints of other wearables to come - "We may develop future products that are regulated as medical devices by the FDA", it says at one point (as eyewear, Spectacles are FDA-regulated).

Snap's biggest losses stems from "hosting fees" which it pays to cloud computing companies such as Google to use their infrastructure for its data. Younger users age 11 to 24 visit about 20 times daily for about 30 minutes, Snapchat said. Engagement is key to the company's money-making strategy, so if people aren't spending time using its products, that's bad news for Snap's bottom line.

The lawsuit was originally filed by an individual in February 2013 against Snap's predecessor entity. The app is founded by Evan Spiegel and Bobby Murphy at Stanford, and was built as a tool to send messages and visuals that would self-erase after an allotted time. The company's 10-Q was not available as we went to press but likely contains dozens of references to ARPU.

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Based on previous investments, the tech firm would be worth between $20bn and $25bn, making it the largest company to list shares in the USA in this year.

The company filed with an initial size of $3 billion, a placeholder amount used to calculate fees that may change.

But given the vast gap between where Twitter and Facebook are today - Facebook's market cap is more than 30 times Twitter's - investors must certainly hope that these early comparisons don't end up meaning much. Quarterly average revenue per user on a global basis climbed to $1.05 in the fourth quarter of 2016, compared with 31 cents in the fourth quarter of 2015.

If the stock performs well, Snapchat's IPO could encourage other billion-dollar tech startups to go public. Oh yeah, the company also notes that its main demographic, people who are 18 to 34 years old, isn't as brand-loyal as its older counterparts. Companies including Alphabet, owner of Google, and Facebook, have voting structures that give more rights to founders but it is highly unusual to not sell any voting shares.

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