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Snap Files For IPO While Twitter Struggles

The company formerly known as Snapchat is going public. Snap Inc. submitted documents to the U.S. Securities and Exchange Commission (SEC) to hold an initial public offering (IPO).

Here's how the company described its mission in the S-1 it filed with the SEC:

Snap is a camera company.We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate. Our products empower people to express themselves, live in the moment, learn about the world, and have fun together.In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones. This is because images created by smartphone cameras contain more context and richer information than other forms of input like text entered on a keyboard. This means that we are willing to take risks in an attempt to create innovative and different camera products that are better able to reflect and improve our life experiences.

Snap is looking to raise $3 billion with a valuation between $20 billion and $25 billion. That makes it the biggest IPO in the West since Facebook. Twitter's valuation reached $24 billion when it went public in 2013, but Facebook set the record with its $104 billion valuation in 2012. While these social networks have varying revenues and profits, the general thinking is that investors pay such prices to buy into the companies' futures, not presents.

The IPO comes shortly after Snap re-branded itself from Snapchat, the ephemeral messaging service for which it became famous, and introduced a connected eye-wear product called Spectacles that allows people to easily record videos and share them with their friends. That $130 gadget is currently only available from a "Snapbot" vending machine in Venice Beach (and apparently one in NYC), but Snap is likely to make it available in more markets as it ramps up production.

Combined, all these developments mean everything is coming up Snap. It's releasing new products, expanding its market, and looking to reinvigorate the public market's interest in consumer tech companies. Twitter, on the other hand, is scrambling to update its service just to survive a little longer.

The company announced in October that it planned to overhaul its service to attract more users, convince existing users to stick around, and prove to investors that it can thrive as a standalone company. It also revealed that Vine, the six-second video service, would shut down in "coming months." Then in November, it updated its anti-harassment features to curb what critics have called rampant abuse that occurs on its social media platform.

This disparity makes sense. Although Twitter has become an important force in the spread of information, Snap has arguably had a bigger influence on the way people communicate. Twitter gave the world the hashtag; Snapchat popularized one-to-one communications that aren't permanently stored on a company's servers just waiting to be seen by law enforcement or criminal hackers. (Or at least attempted to do so, with varying degrees of success.)

Snapchat also has more users than Twitter and is more popular with young people. Now that Snap has released Spectacles, the company also has a foothold in the hardware market, whereas Twitter has struggled to make new software products last for long. (Remember #Music? Nobody does.) Soon people are likely to say the same about Vine, and if it can't compete with the surging popularity of Facebook Live, the live-streaming Periscope service.

There's always the possibility that Snap is over-reaching with this IPO, given its relatively limited userbase of 160 million people and financial situation. Snap's revenues grew between 2015 and 2016--from $58.7 million to $404.5 million--but its losses also grew from $372.9 million to $514.6 million. The company also warned in the "risk factors" section of its S-1 that it "incurred operating losses in the past, expect[s] to incur operating losses in the future, and may never achieve or maintain profitability." Those aren't the most heartening of phrases to hear from a company seeking billions of dollars.

But for now things are looking better for a company previously dismissed as a "sexting app" than they are for Twitter, which has been at times heralded as the global town square, and a successful public offering could make the disparity between the two companies' fortunes grow even wider than it is now.

  • teamninja
    Looking to raise 3 billion with a valuation of 20-25billion more social media companies looking to sell ads but they are making cameras for glasses???? Is recording with your glasses going to come back again this time positive instead of negative like google glass. what do you guys think?
    Reply
  • alidan
    google glass was 1500$
    personally, I want a camera on my glasses recording just because I have had a few bad experiences in my life where a camera would have saved me months of bs.
    Reply
  • Vorador2
    I still can't wrap my head about how these companies are valuing themselves on several billions when their business model is a complete failure. If you look at the IPO, they're doing even worse than Twitter, with a negative cash flow by the hundreds of millions. Basically, they're gonna be living off investors, instead of users.

    They even recognize it on the papers, saying that they may never achieve profitability.

    So basically it's a gamble to invest on Snap. Throw the dice and hope that a miracle happens.
    Reply