The Snapchat IPO is just around the corner, and there are a few key points to pay attention to once the company goes public.
I’ve been fairly vocal about my hesitations when it comes to Snapchat’s big move to go public. The company has done an amazing job building a loyal following, and it’s poised for a monster IPO when it goes public in a few weeks. By raising $3 billion, Snapchat will be worth over $25 billion, and it beat earnings expectations last year while boasting a loyal audience of over 150 million users. So what are some of the things I’m talking about when it comes to hesitations? That has a lot to do with mainstream viability with regards to advertising.
What’s Great About Snapchat
Snapchat has taken messaging and made it something fun and exciting. No matter how many times a user has received a snap, he or she is still happy to see one come in, and the anticipation of opening a snap up to see what someone has sent is as exciting as ever. But excitement does not a $25 billion company make; there needs to be a lasting, broadly-appealing revenue model in order to justify the company’s valuation and keep it going in the long run. There is hope, however.
Currently, Snapchat advertisers are spending more and more with each passing quarter. Snapchat, now Snap, FYI, has also expanded its product offering. The powers that be have seen the opportunity in making the selfie and sharing of everyday, often mundane experiences more lively. It’s not just about adding those filters, it’s about sharing experiences with through the use of things like comments, art, overlays and, yes, filters. I’ve done a lot of research while writing my new book (Marketing to Millennials for Dummies, which is slated to be on shelves this June – #bookplug) and if there is one thing that has become obnoxiously apparent it is that Millennials seek to both have and share experiences. Snapchat offers that, and it is one of the major reasons why the app has done (and continues to do) so phenomenally well with regards to activity and engagement.
But what is missing when it comes to Snap’s potential on the open market?
What’s Missing with Snap(chat)
The big missing piece when it comes to the long-term success of Snap is in its viability as a marketing platform/media buy for SMBs. There are far more small and medium sized businesses out there, and if they don’t see value in leveraging Snap’s products, then Snap is going to have a very hard time maintaining that $25 billion price tag.
Right now, marketers can take advantage of Snapchat’s custom filters for a pretty modest fee – not unlike the very affordable advertising options that exist on social platforms like Facebook or Twitter. The different is in the return generated from the use of these filters. On other social networks, members of a target audience can take some sort of action, like providing data or clicking through to a landing page. Unless you get very creative with Snapchat, like Domino’s did in the UK, you’re going to have a hard time leveraging the network to generate some sort of calculable return. Like Instagram (which has the added benefit of integrating with Facebook) Snapchat exists in the form of mobile application. The thing about mobile applications is that users do not want to have their experiences halted by leaving the app. Add to that the fact that content disappears and insights are limited for advertisers, and Snapchat is at a pretty tricky point with marketers that do not have extensive budgets that can be put towards brand exposure. Essentially, Snapchat needs to find a way to appeal to small and medium sized businesses that can’t afford the massive price tag that comes with Discover ad placements.
So What Should We Expect
The only other tech IPO that is of any interest to the world right now is Uber. Snapchat’s filing has been highly anticipated and the market adrenaline is very high. We can expect to see a similar soar like we did with Facebook when it first went public. (Or maybe the market will be a little more careful this time…) One thing Snapchat has going for it is that it is making a lot of money and has been growing considerably. While losses have shot up year over year, that is to be expected as the company expands into new markets. But will it be able to hit its targets for 2016 and over the course of 2017? That remains to be seen.
Snap is an exciting IPO and if it can find a way to reach audiences greater than Fortune 100s, it will do amazingly well. But just as we’ve seen with television, appealing only to the top 1% as a media buy will not last forever. Snap will need to do a lot of work in order to ensure that the $25 billion valuation is not simply related to the excitement the market feels about the company.
What do you think we can expect to see from Snap after it rings the bell?
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