As Snap Prepares to Go Public, Will Facebook Steal Its Massive Momentum?

IPO filing highlights user growth, revenue questions

A battle may be brewing between Facebook and Snapchat.

Now that Snap Inc. has officially filed for its initial public offering, investors, marketers and media companies are finally getting an under-the-hood look at the app’s finances and business stats.

One of the most interesting nuggets in the filing is that Snapchat now has 158 million daily users, a metric Snap has played up as evidence of its value compared with platforms like Twitter or Pinterest that focus on monthly active users. To put the daily-user number in perspective, Facebook reported during its fourth-quarter earnings this week that it has 1.23 billion daily users.

According to Snap’s filing, daily active users grew 7 percent from 143 million in June to 153 million in September, meaning the company only added roughly 5 million between September and December. Meanwhile, Instagram reports that 150 million people use its Snapchat-like Stories feature every day. And still other reports suggest both users and social media stars are increasingly posting more on Instagram than Snapchat.

Snap said as much in its warning to investors that it will not be able to grow its user base consistently if other platforms continue to mimic its features.

“There are many factors that could negatively affect user retention, growth, and engagement, including if users increasingly engage with competing products instead of ours [and] our competitors may mimic our products and therefore harm our engagement and growth,” read the filing.

While user growth has been sluggish, Snap’s revenue has spiked over the past year to $404.5 million, up from $58.7 million in 2015.

So, can Facebook Inc., which includes its flagship site and Instagram, wipe out Snap’s users as it gears up to go public later this spring?

“When you’ve got a 600 million user base on Instagram versus the 150 million user base on Snap and you combine the conjoined data from Facebook and Instagram ecosystem—which is incredibly molecular compared to Snap—it strikes me that they have got a significant headwind with Facebook,” said Rob Norman, chief digital officer at GroupM. “It’s a significant issue for them.”

"Do I think they'll get to Facebook’s numbers now in five to seven years? The answer is no."
-Rob Norman, chief digital officer at GroupM

To get a better sense of how Snap’s upcoming IPO compares to Facebook and Twitter, take a look at the three companies’ S-1 filings. Ahead of its IPO in May 2012, Facebook claimed $3.71 billion in revenue, and the site had 526 million daily active users. Meanwhile, Twitter brought in $317 million in revenue in 2012 before going public in November 2013. At the time, the microblogging site had more than 100 million daily active users.

Those numbers indicate that Snap could chip away more aggressively at Twitter than at Facebook.

“Do I think that [Snap will] get to Twitter’s numbers within two to three years? I think the answer is yes,” Norman said. “Do I think they’ll get to Facebook’s numbers now in five to seven years? The answer is no.”

Jason Stein, founder and CEO of Laundry Service, argued that Snapchat’s ad business doesn’t have to quickly match Facebook’s.

“As long as Snapchat continues to innovate, and I believe it will, it will maintain a very large and very engaged user base and capture its fair share of the ad dollars moving from traditional mediums to digital platforms,” Stein said. “You can’t spend your time worrying about the competition.”

One of Snap’s advantages is that people use the app first as a communication platform and then to consume content. While people use Facebook to stay connected with groups of friends, Snapchat is a one-to-one communication platform.

“What Snap has to do to maintain its differentiator is being a communication platform that’s favored by people if they come into the market, and if they do that, their opportunity to grow their other products and services remains robust,” GroupM’s Norman said. “If they don’t do that, then Instagram, which is already a threat, becomes an existential threat.”

Omelet’s senior social strategist Kim Jimenez, suggested that with growing competition from Instagram, Snapchat should focus more on messaging than content efforts like Snapchat Discover and Live Stories.

“The Instagram encroachment may actually revert the social platform back to its original focus of ephemeral one-on-one interactions,” Jimenez said.

At the same time, Facebook needs to be careful and not overdo it with new features.

“While Facebook has viewed Snapchat as its biggest threat in 2016, Snapchat has one major advantage that Facebook is lacking: simplicity,” said Victoria Vollo, senior strategist at Kettle. “Since Facebook made its mission to build Snapchat’s core features into their existing platforms, they run the risk of complicating their platform and overwhelming users.”