As expected, Snap Inc. (the company formerly known as Snapchat), has filed the paperwork for its initial public offering (IPO). According to the S1 documents in the filing, Snap Inc. is seeking $3 billion when it goes public and will value itself between $20 and $25 billion.
The Snap IPO was already being hyped as one of the biggest tech IPOs in years, with plenty of commentators and finance tech types hoping it would be the second-coming of Facebook. And look, there’s no doubt that the future Mr. Miranda Kerr, CEO Evan Spiegel, is going to make an absolute assload of money.
But looking at the documents, it also becomes very clear that Snap Inc. has a lot more in common with Twitter, when it filed for its public offering back in 2013, than it does with Facebook.
For one thing, Snap is losing an absolute shittonne of money. According to the S1 filing, Snap LOST $514.6 million in 2016. It brought in $404.4 million in revenue, way up than a measly $58 million it brought in in 2015 (a massive 6X increase!), but it had to spend buckets of money to make that work. But for revenue to increase that much, its losses skyrocketed too. Snapchat lost $372.9 million in 2015.
As Bloomberg’s Shira Ovide noted on Twitter, it’s certainly notable that the cost of revenue for Snapchat was higher than the revenue itself.
Not sure I have ever seen a public company like Snapchat, where cost of revenue is higher than revenue. Crazy.
— Shira Ovide (@ShiraOvide) February 2, 2017
For some comparison, when Facebook went public, it was already profitable to the tune of a billion dollars. Twitter, which went public in late 2013, had also accumulated hundreds of millions in losses, though it’s losses were still less than its revenue for the year. Groupon is another company that had major revenue, but also major losses. Neither Groupon nor Twitter have managed to become profitable, even years after going public. (For more in-depth financial analysis, Bloomberg is a good place to look.)
As is the nature of these kinds of filings, Snap has to admit that it “may never achieve or maintain profitability.” Hmm.
On the bright side, Snap has 158 million daily active users, which is more than Twitter had when it went public, but way below Facebook. And Instagram right now, has more daily active users than Snapchat. Plus, Instagram continues to steal Snap’s best features.
For years, I’ve been arguing that the big question will be whether Snapchat becomes Facebook or does it become Groupon. The financials certainly make it look like the latter.