Is Snap Inc.’s IPO a $1 billion failure?

Following Snap Inc.’s landmark IPO last week, Joe Escobedo asks whether the social networking app’s shares are worth the hype or destined to become another Twitter

Would you buy stock in a company that lost money? But, what if that stock belonged to one of the world’s hottest social networks?

Well, Snap Inc. is banking on the latter following its IPO on March 3, which made its institutional founders $1.1 billion in the process. Despite the company being valued at a whopping $28bn on the first day of trading, it is actually losing money. This begs the question: why would anyone in their right mind buy this stock?

While Snapchat is becoming a force to be reckoned with in the social media scene, it remain to be seen how the company can monetise itself like its competitors. Plus, how will it compete with the likes of Instagram ‘stories’ and WhatsApp, which now allows users to add photos or videos to a “status” update – similarly to Snapchat’s ‘stories’ feature.

In speaking with my Generation Z colleagues, I learned they originally signed up for Snapchat because it was different from mainstream social networks like Facebook and Twitter. It was raw, real and, best of all, short-lived in terms of posts vanishing after a certain period of time. Unlike Facebook posts, which are with you for life.

Soon after the social network launched several fashion, beauty and entertainment brands jumped on the bandwagon. Because the content disappeared within 24 hours, it allowed brands to be more playful and experimental.

Remember when Sour Patch Kids partnered with Vine star Paul Logan to create a five-day series of stories around the theme ‘sour then sweet’ and the brand got 120,000 Snapchat followers as a result. Eventually, even celebrities like DJ Khaled and Kylie Jenner got into the game, amassing millions of followers.   

The buzz gained momentum.n An IPO seemed inevitable. Despite all the hype though, Snap Inc. still hasn’t figured out how to build a base or monetize like its biggest competitor Facebook.

According to Snapchat, 158 million people use the platform each day – creating 2.5 million ‘snaps’. That’s far less than Facebook’s billion-plus users, but Snapchat’s average user is younger and spends about 30 minutes a day on the service. That bodes well for a company looking to capture the coveted millennial market.

Growth in daily users at Snapchat is up 48 per cent year-on-year. And while revenue has grown, from $58.7m in 2015 to $404.5m in 2016, losses are up too. In 2015, the company lost US$373 million a year. Last year, that figure reached US$514 million..

Can you imagine going to your local bank and asking for an increase on your business loan with a $514m loss? You would be laughed out of the building. But in the tech industry, sometimes all you need is a sexy idea and some high-profile endorsements to raise a billion dollars and become a unicorn company.

So that begs the question: is Snap Inc. worth the hype or is it destined to become another Twitter? Only time will tell.

Joe Escobedo is director of marketing at both Happy Marketer and FutureMarketer


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