Is Snapchat the next tech titan?

Snapchat's parent company is poised to go public in March at an expected valuation of roughly $20 billion

No one expected the tech startup to succeed.
(Image credit: REUTERS/Brendan McDermid/File Photo)

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"When Snapchat first became popular in 2013, many thought the messaging app would disappear almost as quickly as its vanishing messages," said The Economist. Instead, it captured the imagination of tens of millions of millennials. Now its parent company, Snap, is poised to go public in March at an expected valuation of roughly $20 billion, the biggest initial public offering for a U.S. tech company since Facebook. But unlike that social media juggernaut, which strives to create a record of its users' lives, "Snapchat offers liberating impermanence." Users love that they can share impromptu pictures and videos with groups of friends without worrying about them living online forever. About 41 percent of Americans ages 18 to 34 use Snapchat every day; about 161 million around the globe open the app daily.

"Snapchat may be a messaging app, but in many ways, it's also a new kind of television," said Christopher Mims at The Wall Street Journal. Snap reports that its users watch 10 billion videos a day. Often, these videos are no longer than 10 seconds, but they are typically strung into slide shows lasting several minutes, in a feature Snapchat calls Stories. If you have enough Snapchat friends, it feels a lot like the "lean back" experience of watching TV. As a result, Snap has a golden opportunity to capture some of the $71 billion a year that goes to TV commercials. Nielsen reported a 37 percent decline in the amount of time 18- to 24-year-olds spent watching TV between 2010 and 2016. That age group is "Snapchat's core demographic."

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Sure, but does that make the company worth $20 billion? asked Shira Ovide at Bloomberg. Having 161 million global users is actually not very big "by internet standards." Snapchat's growth rate is slowing, making it unlikely to catch up to Facebook's 1.2 billion daily users. The strategy of almost all big advertising-supported internet companies — including Facebook, Twitter, and Google — is to go for sheer size. Snapchat plans to buck that approach and "go for niche rather than mass," selling pricier ads and keeping its dedicated users coming back dozens of times a day. It's an unproven strategy; hopefully investors recognize that. For some reason, Snap "has the valuation of a company that has figured all this out."

Snap wants Wall Street to think it's the next Facebook, even though its numbers make it look a lot more like Twitter, said Kurt Wagner at Recode. Snap lost more than $510 million last year; Twitter lost $79 million the year before its IPO, and five years later it still isn't profitable. Facebook, by comparison, was making $1 billion in profit before it went public. It also doesn't help that Facebook has a knack for copying Snapchat's best features, said David Pierce at Wired. Snapchat's growth plummeted more than 80 percent last August after Facebook launched a clone of "Stories" on Instagram. Perhaps it's no surprise then that Snap recently branched out beyond social media with its photo-taking glasses, Snap Spectacles. The only way for Snap to win completely might be "to play a different game."

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