What was once an app for teenagers is now a company valued at somewhere between $20-25 billion. How did this come to pass?
Snap, the parent company of Snapchat, filed for an initial public offering on Thursday. The social media platform is going to be traded on the New York Stock Exchange starting in March, and is raising between $3 billion and $4 billion for its IPO. This makes it one of the most looked at public offerings since the Chinese e-commerce giant Alibaba went public in 2014.
What was once a silly app where teenagers could send each other naughty messages that would automatically delete within 24 hours, Snap is now a tech titan valued at somewhere between $20-25 billion dollars. How could this be, you might be wondering?
According to the New York Times, almost 160 million people use Snapchat on a daily basis. Not only that, the average user opens the app 18 times a day, according to the company’s public filing. Beyond the gimmick of sending friends and circles of friends messages that will disappear within a certain time frame, Snapchat also pioneered video and image filters in ways that have been ahead of the game. What can also be called augmented reality, Snapchat cutely lets users overlay graphics such as dog ears and warped eyes in real-time over both photos and videos. Not surprisingly, the majority of Snapchat’s audience is between the ages of 18 and 34. Facebook, which has been losing this age group in recent years, has tried to replicate many of these filters with Instagram, a startup that it bought in 2012.
To understand the technological innovation of their image filters, you can watch this excellent explainer video from Vox.
The company, founded by Bobby Murphy and Evan Spiegel in 2011 in a Stanford dorm room, also grew its annual revenue by about seven times from 2015 to 2016, from $58.7 million in 2015 to $404.5 million last year, mostly from mobile advertising. Interestingly, it is also foraying into wearables: late last year, it released Spectacles, which are sunglasses that can capture video. At the minimum, they are much more stylish than Google Glasses, and potentially, they could be the first big hardware hit in terms of augmented reality.
However, Snap lost $514 million last year, making the company still not profitable. For this reason, some predict that Snap’s stock performance will be more like Twitter than Facebook, which reported a profit before going public. Before its IPO, the company had raised $2.63 billion in venture funding.
Snap’s decision to go public may break way for other startup giants like Uber, Airbnb, and Dropbox to consider the IPO route as well. And thankfully, Snap will have more than 24 hours to prove its worth.