Daily Bulletin

The Conversation

  • Written by David Glance, Director of UWA Centre for Software Practice, University of Western Australia

Snapchat’s parent company Snap has filed for its initial public offering (IPO) on the New York Stock exchange. Hoping to raise US $3 billion, the IPO would value Snap at between US $20 and $25 billion dollars putting it at almost twice the expected valuation of Twitter when it went public in 2013.

Snap’s SEC filing reveals more details about the company and how CEO Evan Spiegel and CTO Robert Murphy plan to justify the valuation.

Snap have positioned themselves as a “camera company” which has been misinterpreted by some as meaning that it will be somehow making money from selling its own camera hardware. This is not really what was meant by the statement. Snap believes that it is making the mobile phone camera more interactive and expressive by adding the features incorporated into Snapchat.

Actual hardware products like Spectacles, sunglasses fitted with a camera, are extremely unlikely to bring in significant revenue. If anyone is in any doubt as to how hard it is to make money selling cameras, they need only look at GoPro who has been consistently losing money over the past four quarters.

Probably the most startling aspect of the Snap filing is the presentation of the financial results for the last two years. Snapchat made US $404,482 million in revenue for 2016 with costs of US $924,867. Specifically, its cost of revenue was US $451,660. In other words, unless Snap can find a way to make more money out of each of its existing users, it is never going to make money.

Snap says as much when it states in its filing:

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

The other confounding factor is that by the end of 2016, Snapchat had 158 million Daily Active Users (DAU). Whilst this number is impressive, it is already showing signs of slowing down. In the meantime, Instagram, which also has around 150 million DAU, added the last 50 million in just the last 4 months.

What is worse for Snap however is the fact that Facebook and Instagram are implementing features in Snapchat as fast as Snapchat can create them.Instagram stories has essentially stolen users, traffic and advertising interest from Snapchat’s version of the same feature.

As with Twitter, it is hard to see how Snap is going to convince advertisers to spend significant portions of their budgets on its platforms instead of Google and Facebook. Unlike Facebook which covers the entire age spectrum, Snapchat appeals predominantly to 18 - 34 year olds. Persuading older people to send each other ephemeral photos with “funny” filters is going to be a big ask.

Snapchat users who are 25 and older tend to open the app about 12 times a day and spend about 20 minutes in total on the app. Younger users visit over 20 times a day and spend about 30 minutes. Essentially, users are spending about the same amount of time on the app each time they open it, suggesting that they are doing it for a specific reason rather than to access content being provided by advertisers and content providers. This again compares to Facebook where the average user spends more than 50 minutes a day on its different apps.

Reading Snap’s IPO filing document one gets the overwhelming sense that the amount of time spent on outlining the risks facing the company far outweigh the potential upside. From that perspective, anyone investing in this IPO cannot complain that they were not warned of the consequences. Even the market is seeing the main benefit of Snapchat’s IPO as offering an opportunity for Facebook or some other company to acquire it. For Facebook at least, there would be little value in doing that because it has made Instagram a better product than Snapchat will ever be.

As others have said, Snap’s valuation is absurdly overpriced compared to any preceding IPO. It is 5 times more expensive than Facebook and Facebook was making a profit when it went public. It is very hard to see why anyone would want to spend money specifically on shares in this company.

Authors: David Glance, Director of UWA Centre for Software Practice, University of Western Australia

Read more http://theconversation.com/snapchats-ipo-filing-does-nothing-to-justify-its-us-25-billion-valuation-72473

Writers Wanted

Racing 2-year-old horses is lucrative, but is it worth the risks?


How to Sanitize Cloth Masks Properly


The Conversation


Ray Hadley's interview with Scott Morrison

RAY HADLEY: Prime Minister, good morning.    PRIME MINISTER: G’day Ray.   HADLEY: I was just referring to this story from the Courier Mail, which you’ve probably caught up with today about t...

Ray Hadley & Scott Morrison - avatar Ray Hadley & Scott Morrison

Prime Minister's Remarks to Joint Party Room

PRIME MINISTER: Well, it is great to be back in the party room, the joint party room. It’s great to have everybody back here. It’s great to officially welcome Garth who joins us. Welcome, Garth...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Ben Fordham, 2GB

BEN FORDHAM: Scott Morrison, good morning to you.    PRIME MINISTER: Good morning, Ben. How are you?    FORDHAM: Good. How many days have you got to go?   PRIME MINISTER: I've got another we...

Scott Morrison - avatar Scott Morrison

Business News

Tips to find the best plastic manufacturing supplier for your needs

Plastics are very much an important part of all of our lives, but they’re particularly valuable to a wide variety of industries that rely on their production for their operations. The industries, ...

News Co - avatar News Co

7 foolproof tips for bidding successfully at a property auction

Auctions can be beneficial for prospective buyers, as they are transparent and fair. If you reach the limit you are willing to pay, you can simply walk away. Another benefit of an auction is tha...

Dominique Grubisa - avatar Dominique Grubisa

Getting Ready to Code? These Popular and Easy Programming Languages Can Get You Started

According to HOLP (History Encyclopedia of Programing Languages), there are more than 8,000 programming languages, some dating as far back as the 18th century. Although there might be as many pr...

News Co - avatar News Co

News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion