By now you might have seen the news that Snap Inc, the parent company of Snapchat, has filed the documents for an initial public offering (IPO), the beginning of the process that will see the firm sell its shares on the US stock market.
The announcement has been much anticipated and is likely to be one of the largest ever in the technology industry, with the company expected to raise around three billion dollars (£2.4bn) and be valued at between 20 and 25 billion (£16-20bn).
It should also make co-founders Evan Spiegel and Bobby Murphy multi-billionaires in the process.
Snapchat is one of the biggest social media sites around, and such a move has naturally created a buzz around the tech world, but it’s not all positive.
So, what’s the problem?
1. Making money
The best thing about the Snap IPO is that Google might make more money from Snapchat than Snapchat makes from Snapchat pic.twitter.com/l6qXRY1ZeL
— David Pierce (@pierce) February 3, 2017
Well, one industry analyst said Snapchat’s entrance onto the stock market should come with some “warning stickers”.That’s because Snapchat has never made a profit, and Richard Holway of TechMarketView says Snapchat’s success story is far from complete.“Snapchat has 158 million active daily users but only managed a 3% growth in Q4,” he said.“This is less than 10% of Facebook’s active users and less than a third of Instagram users. Both are still growing faster.“Snapchat appeals to the younger teenage user. It has yet to break into the mainstream – meaning older users.”Holway also pointed to losses of 515 million dollars (£412m) in 2016 as a reason to stay cautious, something Snap Inc acknowledged in its IPO filing, stating the company expected “to incur operating losses in the future, and may never achieve or maintain profitability”.
2. Competition from Facebook
The increased competition from Facebook and its various apps by mimicking some of Snapchat’s core features has also been flagged – most notably the Stories feature where users tell the story of their day through photos and video, which recently appeared on Instagram.“The only real USP that Snapchat has over other social media is that its images disappear quickly,” Holway said.“Not that I have ever used it, but apparently it is very popular for sending explicit pictures. But the feature is easy to copy.“Indeed Instagram – owned by Facebook – recently introduced Instagram Stories and has immediately attracted 150 million users.”
3. Snapchat knows its problems
In response to this pressure, Snap Inc also moved into hardware last year as part of a pivot into a “camera company” rather than just the Snapchat app.The firm released Spectacles, camera-equipped glasses which can be used to capture images and video that can then be added to a user’s Snapchat Story.While it’s generated lots of interest in the company, it also shows that Snapchat knows it is under pressure from Facebook, and perhaps that it is feeling that pressure and so is looking to branch out.
4. Twitter syndrome
Those in the industry are already making comparisons to how Twitter looked when it filed its own IPO in 2013 – with questions over the losses mounting up in the company and a slowing of user growth.The problem is nearly four years later Twitter is still struggling to shake off these questions, and there are fears among some experts that Snapchat could shape up to go the same way.
