Snap is paying Google $400M a year for cloud services

Samuel SharpFeb 05, 2017

The initial public offering, to be listed as SNAP on the New York Stock Exchange, could raise as much as $3 billion, potentially making it the largest USA technology IPO since Facebook Inc. raised $16 billion and debuted in May 2012 at a paper value of $81.2 billion.

Snap Inc, the company behind mobile photo app Snapchat, has committed to spending $2 billion (£1.6bn) for the use of Google's cloud infrastructure over the next five years. In 2016 Snap took in $404.5m, up from $58.7m in 2015. But its losses also swelled in 2016: The company recorded a net loss of $514.6 million last year, according to the S-1 filing with the SEC, compared with a net loss of $372.9 million for the year ended December 31, 2015.

A look through the Snap Inc.

By focusing more on increasing engagement, Snap is trying to avoid the pitfalls of companies like Twitter which have struggled to sustain user growth that satisfies Wall Street.

Nearly all of Snap's revenue (88% in Q4 of 2016) comes from North America.


On the bright side, Snap has 158 million daily active users, which is more than Twitter had when it went public, but way below Facebook. "Our two co-founders have control over all stockholder decisions because they control a substantial majority of our voting stock". And unlike the profitable but admittedly slower-growing GoPro at its 2014 IPO, Snap's cash is disappearing faster than its messages, with almost $1 billion evaporating in the last two years.

Facebook, on the other hand, was profitable in 2011, the year before its IPO, with net income of $1. The company will not be selling any voting shares, allowing the company's founders to keep total control of Snap Inc even after raising money in the public markets.

However Facebook has taken several steps to head off the threat and in its IPO filing the company acknowledged that it faces significant competition from companies including Facebook. "The company says its advertising business is growing quickly". This means the board at Snap, led by Evan Spiegel and Bobby Murphy, will still get to call the shots. Not only that, the average user opens the app 18 times a day, according to the company's public filing.

The social media app considers itself "a camera company", and believes reinventing the camera is its greatest opportunity to "improve the way people live and communicate". For example, we have very limited access to the China market, as we have not yet established an operating presence in China to support Snapchat. After reporting a $514 million net loss in 2016, Snapchat executives admit that they "may never achieve or maintain profitability". Will you be buying Snap stock when it goes on sale?

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