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Snap Inc.

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About Snap Inc.

Here's a snapshot of Snap Inc. that won't disappear in a few seconds. The Snapchat phone app burst on the social media scene by allowing users to take photos and videos, attach messages, and send them to other users. The twist: The messages disappeared in a few seconds, unless the receiver captured them. Subsequent features allowed users to enhance their images, including stylized representations of their locations, and offered the capability to string their chats together into a story of their day. Snap, Snapchat's parent, makes money by selling access to its users -- an average of about 160 million a day -- to advertisers. Snap went public in early 2017.

IPO

Snap Inc., the parent company of Snapchat, went public in early 2017, raising about $3.4 billion. It was most raised by a US technology company IPO since Facebook in 2012. The value of the company's share rose 44% on the first day of trading, making Snap worth $34 billion at that time. The company plans to use proceeds for general corporate purposes that include working capital, operating expenses, and capital expenditures. Some money might go toward acquisitions of businesses, products, services, or technologies.

Operations

Snap serves two constituencies. There are the tens of millions of users who send photos and messages across Snapchat every day, and then there are the advertisers who pay Snap to reach those users. All of Snap's revenue comes from advertisers.

For users, there's Snapchat, the company's flagship product. It captures what the company calls 'Snaps,' which are photos and videos. Snapchat provides several tools for adding special effects to Snaps; they include Lenses, Geofilters, and Bitmojis. Its Chat Service Storytelling Platform allows users to collect Snaps and play them in chronological order. They are automatically deleted in 24 hours. The platform can be used by individual users, communities of users, and publishers. The Memories tool allows users to save their Snaps in personal collections. A messaging function also comes with a 24-hour limit on the messages.

Snapchat enables a good degree of privacy for its users. Accounts are private by default and users are required to manually approve each other as friends before they can communicate.

Another user product is Spectacles, sunglasses equipped with a camera that automatically uploads images to the user's Snapchat account. The company contracts with a third-party manufacturer to make the glasses. Snap also offers users the ability to transfer money to each other through Snapcash, which is run on software from a third party.

Snap offers advertisers similar tools, built on the same foundation as the user tools, for engaging users. Under the Sponsored Creative Tools umbrella are tools like Sponsored Lenses and Sponsored Geofilters. Another advertising tool is Snap Ads with Attachments. Snap Ads are vertical full screen video advertisements in the Snap format.

The company also offers a Stories tool for publishers. With the tool, called Discover, publishers attach long-form content to each Snap in their Story. Publishers using the tool include Vogue , NBC, BuzzFeed , the Wall Street Journal, and the New York Times.

Snap has multiyear contracts to run its products and services on Google Cloud and Amazon Web Services. The company is to pay Google about $2 billion over the course of their contract and pay $1 billion to AWS. The AWS contract assures redundancy for Snap operations.

Geographic Reach

Snap is based in Los Angeles and has other offices in the US and around the world. US advertisers generate about 90% of its revenue. As for users, more than 40% of daily active users are in North America (the US, Canada, and Mexico), about a third are in Europe, and the rest are scattered throughout the world.

Sales and Marketing

Snap sells advertisements through a direct sales team that calls on large advertisers and agencies around the world. It also generates advertising through the company's content partners, including publishers like Viacom. Advertisers can also work with Snapchat Ads Partners like TubeMogul and 4C to buy advertising through Snap's application programming interface (API). The API allows advertisers to buy, optimize, and measure ad campaigns in real time.

Financial Performance

While Snapchat has snapped and chatted since 2011, it didn't sell its first ad until 2014. In 2016 the company's ad sales kicked into a higher gear with revenue reaching $404 million from a bit less than $60 million in 2015. The company attributed the jump to increased advertiser demand across its product offerings, a bigger sales team generating deals, and increased user engagement. The number of daily active users (DAU) rose in 2016, drawing more advertisers to Snapchat.

Snap's net loss jumped in 2016, but the difference between revenue and loss narrowed. The company's net loss was $515 million compared to a net loss of $373 million in 2015. Snap's operating expenses start with $400 million a year going to Google for cloud services. In 2016 Snap's other expenses -- for research and development, sales and marketing, and general -- rose significantly from 2015.

Snap spends more money than it takes to give it negative cash flow. Cash outflow in 2016 was more than $611 million, compared to $307 million the year before. The company's accumulated deficit is about $1.2 billion.

Strategy

Since its start as the provider of disappearing photos and texts, Snap has added to its portfolio of user products services to keep users entertained and engaged. It has been particularly effective in reaching a younger demographic. Most of Snap's users are between 18 and 34, with its most engaged users younger than 25. Users younger than 25 visited Snapchat more than 20 times and spent more than 30 minutes on it a day on average. The numbers for users 25 and older were 12 visits a day for about 20 minutes. The 18-34 age group is a golden demo for advertisers trying to reach people with disposable income who haven't established their brand loyalty. Those users have embraced Snapchat with its entertaining features and user interface and its Facebook-owned competitor Instagram as their parents have overrun Facebook.

Snap's business is based on the mobile phone, and it seems that's where advertising is going. The company cites projections that mobile advertising is the fastest-growing segment of the ad market and is expected to grow $66 billion worldwide in 2016 to $196 billion in 2020. Snap has worked assiduously to develop tools for advertisers on its platform. It developed technology that allows advertisers to show full-screen vertical ads, which the company's analysis suggests is more engaging than horizontal ads on vertical screens. Users prefer to hold their phones vertically rather than horizontally, according to Snap.

The key question for Snap is its ability to develop new products that keep current users and attract new ones. It faces competition from Facebook and its Instagram and WhatsApp apps, Google and its YouTube unit, Apple, Twitter, and companies developing new apps. In Asia, where there is much potential for growth, competition includes Kakao, LINE, Naver (including Snow), and Tencent. The biggest line item in Snap's income statement is for research and development. In 2016 it spent more than $183 million on R&D, a $100 million jump over 2015. The arms race in social media involves adding features and tools that keep users engaged. Instagram, for example, offered a Stories-like tool for its users. In response, Snapchat beefed up its software security in an attempt to prevent reverse-engineering of its tools.

Mergers and Acquisitions

Snap bought Bitstrips Inc., a web and mobile application that allows users to create a personal avatar, in 2016. In 2015 Snap acquired Looksery Inc., a mobile video communication company that creates lenses for use within applications.

Snap Inc.

2772 DONALD DOUGLAS LOOP N
Santa Monica, CA 90405-2951
Phone: 1 (310) 399-3339

Stats

Employer Type: Publicly Owned
Stock Symbol: SNAP
Stock Exchange: , NYSE
Chairman: Michael M. Lynton
CEO and Director: Evan Spiegel
CFO: Andrew Vollero
Employees (This Location): 148
Employees (All Locations): 2,884

Major Office Locations

Santa Monica, CA

Other Locations

Pacific Palisades, CA
Santa Monica, CA