Web sensation Snapchat has notified regulators of plans for an initial public offering that could value the company at up to $25 billion. But the documentation it has filed sheds light on the huge losses it is currently making.
According to a registration statement sent to Securities and Exchange Commission (SEC) , Snap Inc, the parent company of Snapchat, made a net loss of more than half a billion dollars in 2016, despite generating revenues of $404.5 million.
Snapchat also acknowledged that it "may never achieve or maintain profitability" in a summary of the risks facing its business.
Founded in 2011 as Picaboo, Snapchat allows users to share photos and short videos that soon disappear from view, unlike on Facebook. It appears to have taken off among teenagers, who regard the service as a trendy alternative to longer-established social networking sites.
Like Facebook and others, Snapchat is heavily reliant on advertising for its sales, although it is trying to generate revenues from other activities. One recent innovation is a set of sunglasses, branded Spectacles, that comes with video-recording functionality and retails for about $130.
A big concern about the mainstream business model is whether Snapchat can continue to lure advertisers, given the lack of spending power among its teenage audience.
That said, some analysts believe Snapchat could become a future Facebook. Ovum's Rob Gallagher is one who thinks Snapchat holds major appeal, saying it has a much better chance of dominating the burgeoning market for user-generated content than a company like YouTube Inc. (See Snapchat Files for $20-25B IPO – Report and YouTube to Lose in User-Generated Content Battle – Ovum.)
What's more, Snaphat's advertising-fueled revenue growth has been impressive. Sales of $404.5 million last year were up from just $58.7 million in 2015, even if losses rose from $372.9 million to $514.6 million over the same period.
Snapchat reckons worldwide advertising spend will grow from $652 billion in 2016 to $767 billion in 2020, with spending on mobile advertising rising from $66 billion to $196 billion.
The company's user base has also been growing quickly, although it remains a long way behind that of Facebook. At the end of December, Snapchat had about 158 million users, having served fewer than 107 million a year earlier. Facebook now serves more than 1.5 billion customers worldwide.
Snapchat's success at attracting an older audience could be absolutely critical to its long-term fortunes.
Snap's filing indicates that $3 billion is the target from the sale of shares, but reports suggest it will look to raise as much as $4 billion during the initial public offering. That amount would give Snapchat a market value of as much as $25 billion.
To see the SEC filing, click on this link.
— Iain Morris, , News Editor, Light Reading