I consider Snap to be the most interesting IPO of this year because of how fast it is growing and the potential $25 billion valuation it may receive. Snapchat is an app that teenagers and 20 somethings love, but transitioning to a real business is tough. The app which was known as a flirting device is now seeking hundreds of millions in ad-dollars from top agencies. Looking at Twitter as a comparison to see how it can avoid making the same mistakes, it’s tough to say whether the monetization was the problem or the user growth was the problem. Lack of monetization hurts the stock which hurt the ability to retain top talent. However, Twitter’s stock plummeted because it failed to meet user growth expectations. It’s tough to increase the ad-load when the user growth is already slowing. Regardless of whichever problem claim first, I would say Snap wants to avoid slowing user growth/engagement and reach profitability quicker.
Snap has many hurdles it needs to overcome to reach profitability. The biggest hurdle it faces is gaining user targeting. Facebook’s greatest strength is that it knows who to serve ads to. This allows advertisers to get the most bang for their buck. While it has had some mess-ups with data analytics, it’s still the king of the space. Because Facebook has gathered information on your age, gender, likes, and place of residence, it can pinpoint exactly what you may be interested in purchasing. There may not be another company which knows more about people than Facebook. Snapchat doesn’t have to become the next Facebook to have a successful IPO, but it can’t turn into Twitter. Twitter has no knowledge of its logged-out users, so they monetize at a very low rate. Twitter only knows what tweets you view and engage with and who you follow. Snapchat is going to run into the same problem because you don’t have to fill out a detailed profile page and tell Snapchat what you like. Snapchat may have to do this, but without enraging its users by changing core features.
