Snap Inc., the parent company of Snapchat, is going ahead with a share sale in an initial public offering (IPO), hoping to raise $3 billion and that would value the company above $20 billion.
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Snapchat is a camera application to communicate through short videos and images. On average, 158 million people use Snapchat daily and over 2.5 billion Snaps (short videos) are created every day.
In a regulatory filing with the Securities and Exchange Commission on February 2, Snap disclosed that its advertising business is still young but growing rapidly. For the year ended December 31, 2016, the company recorded revenue of $404.5 million, as compared to revenue of $58.7 million for the year ended December 31, 2015.
However, Snap incurred a net loss of $514.6 million for the year ended December 31, 2016, as compared to a net loss of $372.9 million for the year ended December 31, 2015.
Snap's global average revenue per user (ARPU) in the three months ended December 31, 2016, was $1.05, compared to $0.31 for the same period in 2015. In North America, our ARPU in the three months ended December 31, 2016, was $2.15, compared to $0.65 for the same period
in 2015.
The share sale could take place as early as the first week of March in what could be the biggest US IPO in more than two years.
Snap will issue nonvoting shares in the IPO. It said that Evan Spiegel, Snap co-founder and CEO, and Robert Murphy, co-founder and chief technology officer, have control over all stockholder decisions because they control a substantial majority of voting stock. The Class A common stock issued in this offering will not dilute their voting control.
Snap said in the filing that it brings marketers a desirable, highly engaged audience of young users.
If the IPO becomes successful, that would boost Snap's position for marketers who spend some $70 billion annually on TV ads while trying to reach young audiences. In the advertising space, Snap will be up against players like Facebook and Google in the race for ad dollars.
According to market research firm IDC, worldwide advertising spend will grow by 18 percent to $767 billion in 2020 from $652 billion in 2016. Mobile advertising is the fastest growing segment of this market and is expected to grow nearly 3-times from $66 billion in 2016 to $196 billion in 2020, while all other advertising spend is expected to decrease by approximately $15 billion during the same time period.
Snap said it will use the proceeds from the IPO to increase its capitalization and for general corporate purposes. It may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies.
On the risk disclosure part, Snap made clear that to maintain revenue growth and eventually become profitable, it must keep existing users on the service often and add new ones. If it doesn't, "our business would be seriously harmed," the filing states.
Apart from Snapchat, Snap also offers lots of fun creative tools like lenses, geofilters, and bitmojis that allow users to express themselves through Snaps.
