Snapchat’s value has been placed at $US25 billion ($AUD32 billion) after parent company Snap Inc filed documents for its Initial Public Offering on the New York Stock Exchange last Friday.
Trading as ticker “SNAP”, the company is hoping to raise $US3 billion ($AUD3.9 billion) through the IPO, and details from the prospectus show the company is hauling in significant advertising revenue.
In 2015 Snapchat made $US58.7 ($AUD76.4) million in advertising revenue, and bumped that number up to $US405.5 ($AUD528) million over the course of 2016.
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However, despite these impressive numbers, Snap has made it clear the company is currently not profitable, stating in the filing “We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability”.
The company lost $US372.9 ($AUD485) million in 2015 and $US514.6 ($AUD670) million in 2016, making the IPO a tough sell for many investors.
Despite this, it’s clear the company is hoping its engagement and strong user base will attract investors, reporting the app has over 158 million daily active users. Out of that, 69 million are from North America, 53 million from Europe, and 39 million from the “rest of world”, including Australia.
IPO documents also show the “millennial social network” stigma associated with Snapchat is not entirely accurate, with 50% of new daily users in North America being over the age of 25.
The IPO details many of Snapchat’s offerings to advertisers, including its new advertisements peppered throughout user’s daily “Stories”, and its extensive geofilter and lens offerings.
Snap Inc highlights Australia as an advertising market of interest, sharing data from intelligence firm IDC showing Australia as number seven on a list of top ten global advertising markets. IDC reveals Australian companies spent $US1.4 ($AUD1.8) billion on mobile advertising alone in 2016.
“Most of the world’s advertising spend is concentrated in a few developed markets. We believe that the concentration of our Daily Active Users in these developed markets will help us address the global advertising market opportunity,” the company wrote in the filing.
Advertisers must understand platform
With this in mind, Australian SMEs may now be considering Snapchat as a way to spruik their brand to its growing audience. However, digital strategy consultant Andrew Hutchinson believes the platform only works for a certain type of business.
“Snapchat’s key demographic is 18-34 year olds, so if you’re wanting to reach highly active younger audiences, Snapchat is where they are,” Hutchinson told SmartCompany.
“Brands on Snapchat have to know the platform and its nature. It’s more fun, and it’s more vibrant, so you have to take a specific approach.”
The need for this specific approach is a main point of differentiation between Snapchat and other advertising platforms such as Facebook, and Hutchinson believes it can put many advertisers off.
“The hardest thing about Snapchat is that it’s platform-specific. Other social media advertisements can generally be repurposed across Facebook or Twitter, but for Snapchat companies have to commit much more to it,” he says.
“You have to really understand what you’re using.”
If you’re wondering whether your business would benefit from ads on Snapchat, Hutchinson says there are “no rules apart from the rules of your audience”.
“It all depends on what your target audience is. If you know your main audience is on Snapchat, then that’s where you need to be.”