It is the moment every company dreams of, the initial public offering. Snapchat has finally entered the market with potentially the largest U.S. tech IPO since Facebook in 2012. Despite the buzz and excitement, many are skeptical about what this means for the company and for shareholders. Afterall, Snapchat Inc. reported $515 million in losses in 2016 and $373 million in losses in 2015. Is Snap Inc.’s market value based in hype or will this company see profits in 2017?
Losses aside, Snapchat Inc. reported a growth in revenue of almost 600 percent and reported $404 million in advertising sales in 2016. The app, which has 158 million daily users, has seen substantial growth since its launch in 2011 and continues to develop innovative advertising strategies. Snapchat stories, interactive facial filters and geotags launched Snapchat from a niche app to a household name. The company continues to find meaningful ways to engage with users and differentiate itself from big players like Facebook and Instagram. Recent developments include everything from shoppable ads to in-the-feed videos and a full-blown API. In September, Snapchat Inc. even released hardware called Snapchat Spectacles that are equipped with a camera to send snaps.
Despite recent innovations and revenue growth, Snapchat still has obstacles to overcome. In 2016, Instagram launched Instagram Stories. Much like Snapchat Stories, Instagram Stories allow users to post content to the new stories stream where all photos and videos are automatically deleted within 24 hours. In Q1 of 2017, Instagram launched ads within their stories platform. Social advertisers are able to use Instagram Stories as an additional placement option, creating a lower barrier of entry than Snapchat since advertisers are able to traffic ads through Facebook Ads Manager and Power Editor. The launch of ads in Instagram Stories before the Snapchat IPO is cause for concern. Instagram has a clear competitive advantage. Snapchat’s costly minimums and low completion rates create a high barrier to entry for smaller agencies and advertisers, and Instagram stories can be easily integrated into current social plans.
I predict that Snapchat will roll out unskippable video ads for advertisers who are willing to pay a premium. While the competition is fierce, Snapchat can use these opportunities to invest in their innovative ad products and capitalize on distinct differentiations. Sponsored live stories, brand-owned Snapchat Discover pages, geo-tags and facial filter ads will lay the foundation for Snapchat’s niche and distinct advertising mix.
Photo via Wilfred Iven