Snapchat looks more like Twitter than Facebook

Written by on January 24, 2017 in Guest Blog with 0 Comments

REUTERS/Eric Thayer/File Photo

Snapchat appears to be intending to focus on engagement metrics to justify its $20bn-$25bn valuation in the coming IPO. I see this as a sure sign that real metrics such as revenue and profit will fall far short of that which a regular company would need to justify that valuation.

Snapchat is essentially an instant messaging platform with the ability to send video and pictures as well as some cool and fun video annotation features.

  • Although video is a big part of the appeal of Snapchat, I do not consider this to be a Media Consumption platform meaning that Snap Inc.’s coverage of the Digital Life pie is actually pretty low.
  • Given its current offering, I would be prepared to give it Instant Messaging and Telephony giving it total coverage of 14%.
  • I do not think that its offering is yet broad enough to allow it to monetise either Social Networking or Media Consumption.
  • RFM estimates that this would give it the ability to grow revenues to around $2.5bn per year in the best instance at which point it would then grow around 7-8%.
  • I suspect that the long-term promises being made will be far higher than this as I see no way in which this scenario could underpin a valuation of $20bn – $25bn.
  • Furthermore, I remain concerned that Snapchat’s core user base of 12-24 year olds is not as interesting to advertisers as the older demographic groups.
  • This is because this age group does not have a lot of money to spend on products and therefore is of less value to advertise to.
  • The net result is that Snap Inc. looks more like Twitter than Facebook and also has a user base less capable of generating revenues.
  • This means that Snap Inc. will need to innovate and develop its strategy beyond its core offering to have any chance of justifying the IPO valuation.
  • Snap Spectacles are an interesting move in this direction and are unique as the only product that has made wearing technology on one’s face cool.
  • However, they are not going to do anything to revenues and so will not directly alleviate the situation in which Snap Inc. will find itself.
  • The net result is that I see the following scenario without a major innovation on the part of Snap Inc:
    • First: An IPO at $20bn-$25bn which goes reasonably on the back of promises that don’t have to be met for a little while.
    • Second: A big miss on a set of quarterly results as revenues don’t come though as promised causing a collapse in the valuation.
    • Third: Recovery will only come with a major innovation from Snap Inc. or the company will be acquired by one of the much larger ecosystems.
  • On the basis of what I can see at the moment, I think a rosy future is already being paid for at $20bn – $25bn and so I would stay away from this one.

This article was first published RadioFreeMobile.

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About the Author

About the Author: Dr Richard Windsor is the founder of Radio Free Mobile which is an independent research provider. The research helps clients to understand and evaluate the players in the digital ecosystem and presents a unique perspective on how all the pieces fit together in an easy to read and digest way. The product is available on a subscription basis and counts members of the handset, telecom carrier, Internet, semiconductor and financial industries as its subscribers. RFM is the land of the one man band meaning that Dr. W. also makes the tea. .

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