In 2013 Facebook offered to buy Snapchat for $3 billion which was promptly turned down by young founder and CEO Evan Spiegel. At the time, the rejection faced criticism but Spiegel was right to turn down the offer. In 2013, Snapchat was just at the beginning, not even close to reaching its prime. If Facebook’s offer told us one thing about Snapchat, it was that it was worth it and that soon it would become a major player.
Fast forward to now and Snapchat has just filed for an Initial Public Offering, the first sale of stock by a company to the public , set to be the biggest since Alibaba in 2014 at $25 billion. Except many say Snapchat isn’t ready for an IPO, and they may be right.
With less than $1 billion in revenue this year, Snapchat is still not profitable. While the brand is about the same size in revenue as Twitter was when it went public (around $250-350 million) Snapchat has continually struggled to find ways to make money off of its base of 100-million active users (through stories) with that number jumping to a reach of 150-million active users. Likely this struggle to be profitable will continue after the IPO.
The brand faces considerable amounts competition from other ad platforms among brands with more users such as Instagram with its active user base of over 300-million. While Snapchat has Twitter’s active base of 140-million users beat, competition with Facebook remains tight with their billions of users. Even more so, ad-space on Snapchat is tight with advertisements only available through stories by media partners and market-driven geofilters often taking too long to be passed.
But what might be set to hurt Snapchat the most, is that people still don’t know what it is or what it’s for. People don’t get it. The app, for a longtime, has remained a secret gem across the 18-34-year-old age range for its inconspicuous ability to send salacious photos. It’s platform, largely, is still a glorified messaging platform where the messages are pictures instead of words.
Where Snapchat has tried to be innovative, it has failed such as it’s video-facetime capabilities or it’s “Snap Cash” option. It doesn’t have the ease of access for getting news like Twitter does, and it doesn’t have comfortability of Facebook to get mom and dad on board.
While the app makes it very easy to give an inside look into people’s lives, it fails in its ability to grow a small brand. Snapchat lacks the accessibility that small businesses need for advertising. While it attracts big players to advertise, it fails to harness any real impact or merit to create and build the brand the same way Instagram, Facebook or Twitter does for the small players.
It’s secrecy also largely plays against it in that Snapchat lacks sharing power. Snapchat’s platforms make sharing direct - a line to those you send your snaps to or users who view your stories. But unlike other social networks, there’s no retweet, share or repost button for when you want to bridge something to a larger audience.
But this secrecy extends beyond the app. The company itself remains a huge secret. There is virtually no access to stats on the user-base or Spiegel himself. These are all serious issues, and ones that are a huge hinderance to Snapchat’s ability to make money.
People have underestimated Snapchat before and the company proved its critics wrong in every way, so we shouldn’t underestimate it now. But, Snapchat, more than ever, needs to find a way to be profitable for its investors if it wants to remain a player in this game. There’s no way to ignore that the company is losing money. This IPO may be just what Snapchat needs to gain the funds to start work on new products. But if Snapchat is banking on these products for profit without a backup plan- there may be a new problem arising.
