The IPO is rumored to fetch as much as $25 billion
Last week, Evan Spiegel and co. announced that Snap Inc. has finally filed for an initial public offering, and market analysts have since been postulating on how much of its prospective $25 billion valuation can be attributed to advertising.
Its IPO filing revealed that company sales increased by over 600 percent in 2016, growth buoyed by an exceptional monetization strategy that incorporates sponsored content and advertising within the platforms noninvasive experience likely an entirely different direction than Facebook would have gone had Snapchat not balked at its $3 billion acquisition offer in 2013. The nature of Snapchats continued investments into marketing will determine the success of an IPO that investors both hope will follow Facebooks and fear could mirror the NYSEs last significant social media public offering: Twitter.
Expectations for Snapchats 2015 ad revenue were low because Snapchat launched its ad program mid-year, said Catherine Boyle, principal analyst for mobile at eMarketer. Also, in the latter part of 2015, advertisers began voicing concerns about the apps limited ad targeting and measurement capabilities.
Advertisers expected Snapchats advertising capabilities to be similar to those found on legacy social networking apps, namely Facebook and Twitter, and the lack of comparable capabilities convinced many advertisers to stay on the sidelines, or invest minimally in the platform, she said. However, 2016 was a pivotal year for Snapchats ad business: In June, the company expanded the number of Snap Ads available to advertisers, which included several interactive ad units.
The company also announced many new targeting parameters and partnerships with third-party measurement firms. The actions that Snapchat took to improve its ad offering in 2016, along with the apps rapidly increasing user base, are the main reasons why projections for Snapchats ad revenue in 2016 and 2017 are much higher compared with 2015.
Many analysts saw Facebooks offer as more than providential for the nascent Snapchat, especially given Twitters struggles in scaling its most high-profile acquisition at the time, Vine. Although Vine had significant usage rates, Twitter was unable to monetize the service in any appreciable way, eventually being forced to shut down the majority of the service last year (see story
Snapchat was seen as largely of the same ilk: A social media property that was near ubiquitous within a certain cohort, but one that did not have avenues for monetization built-in into the user experience.
The company has also been at the forefront of messaging innovation
After raising more than a few eyebrows for rejecting Facebook, Snapchat would go on to pursue an aggressive monetization strategy based on advertising, and its (initially notorious) high rates for media buys evinced a confidence in making its massive user base amenable to brand presence on its platform.
The next year, Snapchat introduced geofilters, a location-based content feature that brands would eventually snap up en masse as an opportunity for more granular targeting. In 2015 Snapchat introduced its Discover feature, a hub for sponsored editorial content that successfully courted even the most entrenched legacy publications, such as Vogue, The Wall Street Journal and recently, The New York Times.
2016 was a banner year for the company. Geofilters became open for the general public to purchase (a boon for weddings across the country) as Snapchat continued to rake in media buys by the handful; the company rebranded as Snap Inc., a camera company according to its IPO filing; and it introduced Spectacles sunglasses with Snapchat enabled cameras attached which could be its most promising development, and a product that will look to capitalize on the shrinking distance between consumer personal identity and personal brand.
Future of Snap
All of these advances have one thing in common a noninvasive, non-confrontational, consumer-centric and context-driven approach to marketing. Much more than competitor Facebook, eerily similar to traditional advertising in the way it deploys consumer data mined from its services, can say.
Snapchats shrewd maneuvering on mobile have led it to its landmark valuation, and could play into analysis on whether the valuation itself is warranted
. Nonetheless, advertising will play an integral role in the future successes of the company in its pursuit of post-IPO success that rival Facebook which has parlayed one of the hottest IPOs in market history to a near-$400 billion market capitalization has enjoyed.
Spectacles could be a hot commodity in the near future
Snapchats primary revenue source is advertising, so to successfully compete on the world stage for mobile ad dollars, Snap needs to build a large audience in the countries where advertisers have the most money to spend, Ms. Boyle said. According to eMarketers estimates, 87 percent of mobile ad spending worldwide will occur in 10 countries in 2017 (US, China, UK, Japan, Germany, Australia, Canada, South Korea, Brazil and France.)
We expect to see Snap focus on expanding Snapchats audience in these markets. The app is certain to face stiff competition in these countries from homegrown rivals and Facebook. Therefore, Snapchat will be under pressure to introduce unique features and capabilities to the app to differentiate itself from its competition and attract a larger number of users.