7 Challenges Snapchat’s Parent Company Has to Overcome Before It Can Be Wall Street’s ‘New Facebook’

And avoid Twitter's rocky relationship with investors

The mobile app faces dilemmas thanks to both its unusual features and many rivals.
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Snap Inc., the parent company of Snapchat, today is expected to begin trading on the New York Stock Exchange, where it’s reportedly being valued at $24 billion, or $17 per share. The mobile-focused player, founded by CEO Evan Spiegel in 2011, is a classic challenger brand, taking on digital behemoths that came before it as well as traditional media companies.

Its initial public offering will be closely watched in light of how successful social-media forerunner Facebook turned out to be on Wall Street compared with Twitter, which has struggled among investors due to lagging user growth. Whether Snap is the new Facebook or the new Twitter—or something completely different—will almost certainly be more than just a footnote when the next chapters of digital media history are written.

We asked marketing execs to weigh in on what Snap’s biggest challenges will be after the IPO. Here are seven themes that stood out:

Make colossal cash off of bespoke formats

It’s no small task that the company is competing with Google, Facebook and Instagram for ad dollars, but it seems to be off to an auspicious start—for instance, the rumored $200 million ad commitment from an unnamed holding company reported last week by the New York Post. Snapchat will bring in $1 billion in ad sales this year, per a report from eMarketer in September 2016.

At the same time, as Adweek reported earlier this week, challenges exist around building bespoke content for the mobile app’s vertical videos product called Snap Ads as well as its sponsored lenses and geofilters. Those ad products, which are often costly to create, as well as increased competition from Instagram have likely hampered Snapchat’s sales in the last three to five months and could continue to do so when it comes to nailing down major deals. The level of success achieved by its ads API, which became widely available in October, will be worth keeping an eye on in the weeks ahead.

“Its first task is to convince advertisers that it’s the right platform to translate user activity to brand engagement,” said Guillaume Lelait, U.S. managing director at Fetch.

Overcome a Wall Street wistful for the next Facebook

Sean Zepps, associate director of digital strategy at creative agency Deep Focus, part of Engine Group, suggested that the biggest challenge for Snap may be investors weighing the company not on its own terms but against the success of Facebook. It’s a similar problem Twitter has battled since going public in November 2013.

“Whether it’s their lack of understanding of the app and its young audience or the constant comparison they’ll make to the more mature platforms who are borrowing from them left and right, I’m preparing myself for an ongoing Spiegel vs. investor battle,” Zepps said.

Grow, grow, grow your base

One thing is unusually obvious: For Snap to avoid Twitter’s current situation on Wall Street, Snapchat’s user base must continue to expand.

And there’s reason for optimism on that front. The app’s U.S. audience will grow to 70.4 million by the end of 2017, according to eMarketer. That represents an increase of 14.2 percent from 2016. American adults between 45 and 54 years old are one of the biggest areas of growth, currently making up 6.4 percent of Snapchat’s U.S. patrons, according to eMarketer, whose previous projections saw that demo come in at only 4.2 percent.

Meanwhile, because big brands love international scale, Snapchat, which has 158 million global daily users, will also have to continue to build its audience in other countries.

“It’s going to feel some pressure to grow the user base at a more aggressive pace once they have investors at the table,” Zepps said. “Sadly, the legacy of Twitter lives on in the mind of most technology investors that saw Twitter’s growth stall. Snap Inc. is going to have to constantly remind them that they didn’t mistakenly back a flashy young social-media company, especially with such a lofty evaluation.”