8 Things Marketers Need to Know About Snapchat's IPO

By Published on .

Snapchat gave investors and advertisers a peek at its business with its IPO filing on Thursday.
Snapchat gave investors and advertisers a peek at its business with its IPO filing on Thursday. Credit: Snap Inc.

Snapchat sees dollar signs and some danger signs as it heads for Wall Street.

On Thursday, the messaging and media app filed for its IPO and disclosed more details on its business than it ever has. Aside from investors, advertisers also get to see how the hot mobile property is doing.

For instance, one area of deep interest is growth -- how many users can it attract? -- and it's already seeing some flatter adoption rates. Of course, companies are required to disclose every sneeze if it could adversely impact their business.

Here's a look at the important numbers for advertisers:

Daily users

Snapchat has 158 million daily users. That's good. The company believes that is the crucial metric for any social platform, not monthly users, and it's a number that rivals like Twitter don't even share.

Facebook does, however, and has 1.23 billion daily users, and advertisers want to see that kind of potential from Snapchat.

Growth sputter

Now, the bad part is 158 million daily users was only up from 153 million since the end of September.

"The growth in Daily Active Users was relatively flat in the latter part of the quarter ended September 30, 2016," Snapchat said in its IPO filing. Is slowing user growth partly due to Instagram, which has 600 million monthly active users, borrowing some of Snapchat's most distinguished features, like Stories?

"Our competitors may mimic our products and therefore harm our user engagement and growth," the filing said.

Terms of engagement

Snapchat said the majority of its users are 18 to 34 years old. Youth is nice, but the company also said it means its core audience is fickle and could move on. For now, though, the younger generation is the most active on the platform. People younger than 25 visit the app 20 times a day on average, spending an average of a half-hour there a day, the filing said. Users older than 25 average 12 visits for a total of 20 minutes a day.

Advertiser commitments

Snapchat has been trying to get advertisers to commit to spend big on the platform, but said it has no such deals yet. No major holding companies have promises to deliver tens of millions of dollars, yet.

"Although we have recently tried to establish longer-term advertising commitments with advertisers, most advertisers do not have long-term advertising commitments with us, and our efforts to establish long-term commitments may not succeed," Snapchat warned in the filing.

Competitors biting

Snapchat said it also could be concerned if advertisers take the knowledge they get from playing on its platform and apply it to advertising with rivals. Facebook has already introduced vertical video ads on Instagram, which copy Snapchat, and it's working on similar animated filters for brands that can go on users' selfies.

"Advertisers may use information that our users share through Snapchat to develop or work with competitors to develop products or features that compete with us," the filing said. "Certain competitors, including Apple, Facebook, and Google, could use strong or dominant positions in one or more markets to gain competitive advantages against us in areas where we operate."

Metric honor system

Metrics have become a hot topic in the industry because advertisers are concerned that platforms could misrepresent numbers. Last year, Facebook had to adjust its reporting because of errors it made, and Snapchat gives a nod to metrics in its filings.

"We regularly review metrics, including our Daily Active Users and ARPU (average revenue per user) metrics, to evaluate growth trends, measure our performance, and make strategic decisions," the filing said. "These metrics are calculated using internal company data and have not been validated by an independent third party."

There are some challenges to measuring users, like when people have more than one account.

Revenue rocket

Now, for the good news: Snapchat topped $400 million in revenue in 2016, which was up from around $60 million in 2015. Still, it lost $500 million last year, because of how much it's spending. Snapchat said it spent more than $100 million last year on research and development, and much of that went to building its ad technology platform. So it's not profitable, yet.

Ads up

The question is, are the ads working? According to Snapchat, yes, they are. The company disclosed more data about campaigns that used sponsored lenses, app-install ads, vertical video and its other formats. Snapchat used a Bare Minerals ad starring social influencer Amy Pham as an example. It found that 30% of people swiped on the ad to view longer-form video from the spot, spending 30 seconds with it on average. That led to two times more search traffic to its website.

Snapchat claimed Starbucks got 117 million views for a multifaceted campaign on the app, including a sponsored lens that got 23 seconds of play time on average. In other campaigns, Snapchat said it helped drive 42,000 people to a Wendy's location over seven days.

Most Popular