In a world overwhelmed with immediacy and the need for constant contact, the steady decline of Twitter Inc. (TWTR) shares since April 2015 has left the market looking for a new social media darling to watch.
Snapchat – which began as a class project for Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy – has emerged as one of the most popular messaging apps on the market.
Launched in 2012, it combines the instant gratification of social media sharing, while allowing users the rare luxury of impermanence in that all shared data ultimately disappears. Private messages last anywhere from one to 10 seconds on the recipient’s device, while Snapchat Stories are reset every 24 hours.
And Snapchat’s rise has only just started.
What’s the Allure?
To generations growing more accustomed to technological conveniences, Snapchat is a game-changer. But it’s not just teenagers utilizing this app.
Any business or company with creative PR and marketing is seeking a following on Snapchat. By posting photos and videos to capture their audience’s eye, companies are able to tap into this latest trend and keep up an internet presence.
Thus, Snapchat functions as more than just a social network. It’s also an ad platform.
Due to the limited viewing window of posted content, Snapchat’s working model keeps its users hitting the “refresh” button so they never miss a photo of a friend’s meal, a celebrity’s outfit of the day, or a sale at their favorite department store.
Snapchat is both immediate and fleeting, and it’s poised to capitalize on that scarce experience.
And soon enough, we’ll be able to profit from it, too.
With over 100 million active users and 700 million “snaps” sent daily, Snapchat isn’t just monetizing its ideas, it’s also cashing in on the incredible capacity for advertising within the app.
Zacks Investment Research explains that “the combination of a large user base and high daily activity is a goldmine for advertisers. Snapchat recognizes this fact, and is charging an astounding $750,000 minimum for a day of advertising.” By charging per day instead of the usual click, Snapchat is breaking the mold of the online advertising model.
In a recent Financial Times report, it was revealed that Snapchat’s video views have more than tripled every six months.
This figure is particularly impressive when you consider that Snapchat is currently mobile-only.
Imagine what that kind of growth could mean for an investor…
Following Facebook’s Footprints
Ahead of a proposed IPO, Snapchat has raised nearly $650 million in six rounds of funding, with investments from Yahoo! Inc. (YHOO), Kleiner Perkins Caufield & Byers, Coatue Management, and Chinese internet giant Tencent Holdings Limited (TCEHY).
Like Facebook Inc. (FB), Snapchat’s creators have rejected offers to sell the app (one $3 billion offer came from Facebook, itself) – and their decision has paid off exponentially.
When Facebook debuted on Wall Street in May 2012, shares started trading at around $38, with a $90 billion market cap. The stock now trades for around $110 – a gain of 189%.
Snapchat is set for a similar meteoric rise.
Another “Unicorn” Set to Fly
Described as a market “unicorn,” Snapchat joins the ranks of other fast-growing upstarts like AirBnB and Uber as the ones to watch in 2016.
In May 2015, Snapchat CEO Spiegel told Re/code that the company has every intention to IPO and that they “have a plan to do just that.”
While an IPO date hasn’t yet been set, after an impressive round of funding in December 2015, Snapchat reached a valuation of over $16 billion, putting it among an elite niche of tech startups.
The end of last year saw the company’s revenue hit $100 million – which is predicted to triple into the current year. And it’s a huge jump from the $50 million made in 2014.
With profit made solely from advertising, these new numbers show just how rapidly Snapchat is expanding.
As of this month, Snapchat is delving into a new round of funding that’s projected to value the company as high as $20 billion. This – along with high-profile hires like Imran Khan, the Credit Suisse banker who led Alibaba’s IPO in 2014, and Emily White, formerly of Instagram and Facebook – is predicted to be the final step before Snapchat goes public.
The Information’s Jessica Lessin predicts a Snapchat IPO sooner rather than later. “If the business growth keeps up, I don’t think [they] will be as quick to dismiss being public as [their] peers. When weighing the benefits of liquidity against the hassles of being public, I think Evan Spiegel will jump much sooner than others,” Lessin explains.
When Snapchat does go public, there’s no doubt that the company’s executives and investors will scoop a huge payoff. But what about regular investors?
Well, if Snapchat follows Facebook’s lead, they could reap rewards, too. With the platform evolving beyond social media, its integration into the marketplace is eminent, and when it hits Wall Street, a small investment at the ground floor could see your returns multiply, along with the app’s exponential growth.