Almost exactly five weeks to the day Snapchat made a double announcement of Spectacles and a name change to a more corporate sounding Snapchat Inc; and the possibility of an IPO in March next year; the company finally filed papers with the relevant authorities that would value the company at $25 billion.
The IPO for the fast growing company seeks to raise about $4 billion from investors making it one of the biggest IPOs in the last two years. The paperwork for the filing is based on the fact that yearly revenue for the company from ads is about a billion dollars.
With that much yearly ad revenue, 4 billion dollars is not too much to ask from investors I guess.
It won’t be far-fetched to say to Evan Spiegel, the CEO of Snapchat is really feeling the heat from competition from tech firms especially Facebook. Sourcing for that sort of money should mean just one thing, Snapchat is ready to get muddied in he battle for the minds and souls of users. Another way of saying Snapchat is preparing for a long battle.
Because in the last one year, the private messaging and video niche has become more competitive as more apps are joining the race. And the biggest threat to Snapchat is Facebook’s determination to dominate the video niche.
If the IPO is successful (and I don’t see any reason why it won’t be) I would mean the 18 billion dollars valuation of the company back in May was a bit modest. This would tell rivals that investors and the general public are prepared to back Snapchat to become more influential in the social messaging world.
But the battle is really between Facebook and Snapchat. Since Facebook tried and failed to buy Snapchat, Facebook has being on a war of attrition to undermine the growth of Snapchat.
For instance, Facebook have been openly stealing several good features from Snapchat and integrating it into their own product and services.
The most successful is Instagram Stories which is a clone of Snapchat Stories. And just recently, Instagram stories got updated to make it even more feature-rich than Snapchat.
Also there is the new app known as Flash. The app is being tested by Facebook in Brazil. If formerly, Facebook restricted themselves to copying Snapchat features for their own apps, Flash app took the war to another level.
Flash is a new standalone app that does everything Snapchat is able to do. And to make it even better, the app is lightweight and designed to work even if the network connectivity is not strong.
And the thing about testing the app in places like Brazil is all part of a strategy to capture the markets in places where Snapchat is not strong. The same strategy was used in a Ireland recently when Facebook tested another Snapchat feature.
Facebook logic is simple, Snapchat is already strong and popular in the US and Canada. So the plan is not to compete with Snapchat in those countries but in emerging markets where they know they have the resources and infrastructure to get users.
Make no mistake about this, capturing the minds of young users is what this war is all about. Once the youngsters of today are addicted to your product, you’ve invariably secured the future of that product.
For Snapchat therefore, an IPO is all about going into a long battle with the right tools. And the sooner the cash is raised the better for them.
So expect to see a very interesting year for Snapchat next year as they take on the big companies like Facebook and Google.
image credit: thinkprogress.com; theverge.com; businessinsider.com; vanityfair.com