Snap Expects IPO This Month, Profits Elude Company

Ready to take on the world, Snap Inc. finally made its IPO plans public on Thursday.

Set to trade on the New York Stock Exchange as SNAP, the self-described “camera company” plans to raise $3 billion, per its S-1 filing. The offering -- which could come within the month -- is expected to value Snap at somewhere between $20 billion and $25 billion.

Trying to whet investors’ appetites, Snap said in its filing: “Our advertising business is still young, but growing rapidly.” Indeed, the company saw revenue of $404.5 million last year -- up more than 600% from the $58.7 million it generated in 2015.



Along with growing membership, Snap is increasingly making more ad revenue from each user.

Worldwide, average revenue per user (ARPU) in the last three months of 2016 was $1.05 -- up from $0.31 during the same period a year earlier. In North America, Snap’s ARPU in the last three months of 2016 was $2.15 -- up from $0.65 year-over-year.

Yet, Snap still is not making a profit. Last year, the company incurred a net loss of $514.6 million -- up from a net loss of $372.9 million in 2015.

In 2016, Adjusted EBITDA was $459.4 million, up from $292.9 million in 2015. Last year, net cash used in operating activities was $611.2 million -- nearly double the $306.6 million it totaled in 2015. Free Cash Flow was $677.7 million last year, compared to $325.8 million in 2015.

In contrast to struggling social networks like Twitter, Snapchat is positioned for “explosive” growth in ad revenue over the next few years, per eMarketer.

The research firm recently predicted that the playful messaging app would generate $935.46 million this year.

Cathy Boyle, principal analyst at eMarketer, recently said Snapchat’s bright outlook has everything to do with its young user base. “Advertisers are attracted to Snapchat for its broad reach among young Millennials and those in Generation Z, which are valuable demographic groups for many businesses,” Boyle noted in a recent report.

To its credit, Snapchat has also tailored its ad strategy specifically for this easy-to-alienate demographic.

“To engage those often hard-to-reach consumers, Snapchat has expanded its advertising portfolio over the past year to include a wider array of video ads and more sponsored geo-filters and sponsored lenses,” according to Boyle.

Stateside, Snapchat’s Discover feature generates 43% of ad revenue, which is its largest single share, according to eMarketer.

This year, the research firm expects Stories to overtakes Discover as the dominant ad revenue source -- by generating 37.8% of the company’s domestic ad revenue.

Having launched its ad platform in mid-2015, Snapchat still only captures 2.3% of social-networking dollars, eMarketer estimates. That’s despite the fact it now commands 36% of the market in terms of domestic users.

Approaching its IPO, Snapchat continues to experiment with new categories. Bounding into hardware and physical fashion, the company recently unveiled Spectacles -- stylish video-recording sunglasses that are expected to retail for $130.

The shades can record 10-second video snippets, which are designed to approximate one’s natural field of vision. That's thanks to a 115-degree lens, which records circular video. If Spectacles are well received, Snapchat would become the first company to convince consumers to wear connected gadgets on their face.

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