Earlier this week, Snap Inc, the parent company of Snapchat, confidentially filed for an IPO, the first step towards making it a publicly listed company. Such a move has been expected for some time - more than a year ago, Snap Inc. CEO Evan Spiegel flagged the company's intention on this front. And while it has been a long time coming, the move could have a significant impact on both the company itself, and on the wider social marketing space.
Snapchat's reportedly targeting a valuation of between $20 billion and $25 billion, though the final figure could actually come in at up to $40 billion. That is a huge price tag.
As has been well-documented, Facebook tried to purchase Snapchat back in 2013 for $3 billion, which, at the time, seemed crazy, but since then, Zuckerberg's offer has likely pushed Snapchat's value even higher. Facebook, of course, also purchased Instagram for $1 billion back in 2012, which also seemed outlandish, but Instagram's now worth between $25 and $50 billion, which shows that Zuck and Co know a good bet when they see one. Thus, Facebook's interest in Snapchat has boosted interest in the app and what it might become.
For some comparison, here's where Snapchat would rank against other social platforms in terms of valuation and projected return in the next 12 months.
- Facebook - Valuation: $350 billion, 2016 projected revenue: $27.29 billion
- Instagram - Valuation: $50 billion, 2016 projected revenue: $3.2 billion
- Snapchat - Valuation: $40 billion, 2016 projected revenue: $350 million
- Twitter - Valuation: $10.3 billion, 2016 projected revenue: $2.56 billion
As you can see, the valuation matrix for social platform's is varied, making it hard to get a handle on what, exactly, Snapchat is worth - but the more important metric in Snapchat's case is growth. While Snapchat is looking to report a comparatively small $350 million profit in 2016, that's up from $59 million in the year prior, and with 150 million daily active users, and a strong hold over the Millennial market, signs are good for the future of the app.
Snapchat's also just released Spectacles, their much-hyped video recording sunglasses which are generating a heap of buzz online due to the company's unconventional marketing approach.
Finally got my pair of black @Spectacles! The shopping experience is so cool pic.twitter.com/deFzLkVrLY- Moshe Isaacian (@MosheIsaacian) November 17, 2016
But being a listed company comes with additional challenges and issues, and while the signs are good for the company, there are some key elements that could put increased pressure on the app.
And as Twitter's most recent struggles have shown, those pressures can become problematic to say the least.
In the Public Eye
The biggest concern for Snapchat is the rising challenge being posed by Facebook. Facebook has released Instagram Stories, Messenger Day in Messenger, WhatsApp story features, Facebook's new camera - and these, of course, are just the latest in a long line of tools and apps that The Social Network has released to curb Snapchat's growth.
Thus far, this hasn't impacted Snapchat, from what we know (there's been no definitive stats released on the impact of Instagram Stories). But they could.
One of the more interesting elements to consider here is Facebook's strategy to beat out Snapchat in markets where Snapchat hasn't yet established a presence. For example, they first released Messenger Day in Poland, where Messenger use far outweighs Snapchat, they're pushing Snapchat-like features in WhatsApp, which has much higher market penetration across Europe, while reports also suggest that Instagram Stories is booming in Russia, where Snapchat adoption is also low.
If Facebook's able to beat Snapchat into these markets with their Snapchat-like visual features, that'll make it harder for Snapchat to ever get in. In western markets, where Snapchat is established, people see these offerings as clones, but in other regions, Facebook could actually get first-mover advantage.
In addition to this, Facebook's working on new, innovative visual features that may actually prove even more popular than Snapchat's Lenses and Geofilters. TechCrunch reported this week that Facebook has acquired FacioMetrics, a company which has been developing tools which can better detect facial responses, and may one day lead to improved gesture-based controls that go beyond Snapchat's Lenses, while a video on Facebook's Code blog shows that they're already developing tools that can detect more expressions and movement on video - even some that can detect when you're smiling as a trigger to take a photo.
Those tools could move beyond Snapchat's functionality, which could reduce the app's leading edge in the space. But Snapchat is highly attuned to their audience, and have thus far been able to innovate faster and smarter, outmaneuvering their larger rivals.
The question is, can that continue?
Up for the Challenge
There's no doubt has the cool factor down, that they have a great hold of the user-experience element, but Twitter serves as a cautionary tale of going up against Facebook. This is likely why Snap Inc. has listed itself as a 'camera company' as opposed to a social network, to lessen that association, at least to some extent.
There's no doubt Snapchat has huge potential, but as noted, there are concerns about their ability to keep pushing, particularly as Facebook continues to ramp up its competitive efforts. Facebook may see the IPO as a perfect time to push harder, increasing the pressure on the app, and while Snap will have time (and money) to respond, initially, that squeeze could start to hurt over time.
The risk then is that Snapchat gets backed into a wall, like Twitter, and is forced to come up with innovations that are no longer as interesting or cool. In this sense, the shift towards hardware, in Spectacles, is a good move, as it gives them an additional avenue to consider, and the likely shift of Spectacles into augmented reality - beyond simply being able to record content - may even put them in the drivers' seat for that next big shift.
Given all the elements, it's not hard to see why the market would be excited about a listed Snap, but if it slips, there could be a significant change in the app's trajectory. And if it fails, that could lead to fewer companies considering taking on Facebook in any way in future, as the big blue giant will likely just swallow them up on its way through.
Because of this, Snapchat's next move is hugely interesting, and will no doubt give us plenty to talk about and consider as we move into 2017.