The 6 things you need to know about Snap’s $25bn IPO

3 Feb 2017

The Snap IPO in March is one of the most hotly anticipated tech IPOs in recent history, and could be the bellwether for others to follow. Image: NYCStock/Shutterstock

Snap has filed for a massive IPO and will be listed on the New York Stock Exchange. Here are the six things you need to know.

The most hotly anticipated IPO of 2017 has been confirmed and Snap, the creators of the popular social media platform Snapchat, is about become a public company.

Last year, Snap raised $1.8bn in a gigantic funding round, valuing the company at $18bn at the time.

Last night (2 February 2017), Snap filed for an IPO listing on the New York Stock Exchange, at a valuation north of $25bn, in early March.

This is the first tech IPO of 2017 and could be the bellwether for a number of other high-profile IPOs expected to occur this year.

So what did we learn from Snap Inc’s IPO filing?

1. Snap had 161m daily active users in December 2016

6 snappy things you need to know about Snap’s $25bn IPO

Image: Snap

The biggest mystery around the Snapchat app was how many users it actually had, and the S-1 filing is the first time that Snap has revealed these numbers. The answer is 161m daily active users.

The interesting thing is that Snap is making $1 in revenue for every daily user.

Users visit Snapchat more than 18 times a day and 60pc of daily active users use the chat service – this makes it one of the stickiest social media apps on the planet.

The 161m daily users are up from 110m in December 2015. The majority of its user base is in north America (69m) while Europe accounts for 53m daily active users.

2. It is getting very close to profitability

The filing shows that Snap is making revenues of $404m, up 500pc on the previous year.

However, it is still running at a loss of $514.6m on those revenues.

At the present rate of growth, Snap is likely to break even, or even post a profit, in the coming months.

The company is projecting $1bn in revenue for 2017, up 600pc on what it earned in 2015.

The company has around $1bn in cash and cash equivalents.

3. It invests heavily in R&D

6 snappy things you need to know about Snap’s $25bn IPO

Snap Spectacles pop-up store on Fifth Avenue, New York. Image: NYCStock/Shutterstock

Coming out with gadgets such as Spectacles and social media innovations that players such as Facebook want to copy isn’t easy. The company’s biggest investment is in R&D, where it spent $184m in 2016 – up from $82m a year earlier.

The company also spent $124m in marketing and $165m in general and administrative costs.

4. It is a very big employer for such a young company

For a four-year-old company, it has a big workforce. As of 31 December, the company had 1,859 employees.

Last month, it emerged that the company is establishing its international HQ in London, where it already has 75 employees. The decision is a major result for the UK, which has embarked on the questionable road to Brexit.

5. It is investing significantly in the cloud

Running a social network with 161m daily active users – and growing – is no mean feat, and to do so requires an enormously elastic and innovative approach to cloud infrastructure.

According to the IPO filing, Snap has committed to investing $2bn over the next five years in cloud infrastructure.

The biggest winner from this will be Google, Snap’s cloud infrastructure partner.

Both companies have signed a licence platform agreement, with Snap committing to purchase at least $400m in cloud services for each of the next five years.

6. Snap settled $158m to oust co-founder Reggie Brown

Snap, or Snapchat as it was known originally, was founded in Stanford University by Evan Spiegel, Bobby Murphy and Reggie Brown while they were students.

Snapchat began under the name Picaboo, inspired by the concept of messages that would disappear, hence the ghost logo for the company.

A bitter dispute over Brown’s role in co-founding the company was settled, crediting Brown with a role in conceiving the idea.

Brown filed his lawsuit in 2013 after he was forced out of the company and not given equity.

According to the S-1 filing, that settlement figure was agreed at $158m.

This is a lot of money but is less than the $500m Brown initially sought, and no doubt will pale in comparison to what Spiegel and Murphy will earn when they become overnight billionaires on IPO day in March.

Inside Snap Spectacles pop-up store on Fifth Avenue. Image: NYCStock/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years