Coverage: Snapchat files for initial public offering

Instant messaging service Snapchat has filed documents with the Securities and Exchange Commission for an initial public offering that would value the company at $25 billion, various financial media reported Tuesday.

Lauren Hirsch and Liana B. Baker of Reuters had the news:

The filing puts the Venice, California-based company one step further towards its IPO, which sources say could come as soon as March and value it at $20 billion to $25 billion, making it one of the biggest technology offerings in recent years.

Under the U.S. Jumpstart Our Business Startups Act, companies with less than $1 billion in revenue can secretly file for an IPO, allowing them to quietly test investor appetite while keeping financials confidential.

The sources asked not to be named because the information is private. A spokesman for Snap Inc, Snapchat’s parent company, declined to comment.

Snapchat started in 2012 as a free mobile app that allows users to send photos that vanish within seconds. It has more than 100 million active users, about 60 percent of whom are aged 13 to 24, making it an attractive way for advertisers to reach millennials.

Awash in venture funding, the company raised $1.81 billion in May, which valued it at about $20 billion, media reports said at the time.

Rick Statt of The Verge notes Snapchat will use the money it raised to compete with Facebook:

The move signals the most critical shift for the Snapchat maker in its history, paving the way for a large injection of capital to help it grow and better compete with Facebook, Google, and others in the realm of social video and mobile messaging. At its last valuation back in May, Snap Inc. was estimated to be worth as around $18 billion. A successful IPO could catapult the company to many times that figure, establishing Snapchat once and for all as a product with staying power and influence for years to come.

There’s reason Snap Inc. may want to act sooner rather than later when it comes to an IPO. As it stands, Snapchat as a product is currently the largest existential threat to Facebook’s social dominance. After Snap Inc. CEO Evan Spiegel spurned Facebook chief Mark Zuckerberg’s acquisition offer three years ago, the two companies have been in an ever-escalating battle for teen mindshare. And as much of the social behaviors of US smartphone owners have shifted to mobile video, so too have the advertising dollars.

This shift has informed how Snapchat and Facebook have grown as products. As Snapchat tried to move into news with a focus on visual storytelling, Facebook began investing heavily in live video. Now the two companies are fighting over younger eyeballs, with Facebook looting Snapchat’s best features and bolting them onto its main products. Instagram now sports Stories, its own version of disappearing updates designed for more raw sharing of images and video. And a new set of Facebook camera features being tested in Irelandadopts Snapchat’s entire design to promote the same type of communication within the main Facebook mobile app.

Alex Heath and Portia Crowe of Business Insider examined the company’s financial performance:

Snap has told investors that it expects to make between $250 million and $350 million in advertising revenue this year. A recent eMarketer report predicted the company would near $1 billion in revenue in 2017 — meaning an IPO that valued the company at $25 billion would be 25 times its projected revenue numbers.

It’s not clear whether Snap is profitable, however, and the company is aggressively expanding into new businesses and markets that are likely to eat into margins.

Snap’s main business is advertising in the Snapchat app, which has over 150 million daily users. But Snap recently rebranded itself as a camera company and started selling $130camera-equipped sunglasses called Spectacles.

The company last raised $1.81 billion in private funding in May, which pegged its valuation at between $18 billion and $22 billion.

With annual revenue under $1 billion now, Snap was able to file its Form S-1 with the SEC confidentially under the JOBS Act.