Source: WSJ

Snap Inc., Snapchat’s parent company, will go public this coming Thursday afternoon. The company’s valuation was reported to be over $25 billion. Snap Inc. is known for being a secretive company, but investors finally got a close look at the company’s several key numbers. From its SEC filing, Snap Inc. has recorded a revenue of over $400 million. Its loss, however, has not been anywhere less than $500 million as of last year. In December of 2015, the company had a revenue of around $60 million and its loss was more than $370 million. The numbers represent an increase year-over-year of more than six times.

The company, Snap Inc., also noted that all its revenue is being generated substantially from third-party advertising. Last year, 96% of the company’s total revenue came from advertising.

Listed below are some of Snapchat’s advertising products:

  • Snap Ads
  • Sponsored Creative Tools i.e. Sponsored Geofilters which are images that will communicate your exact location to other users creatively
  • Sponsored Lenses - Intended to dress up boring, plain photos by giving you, for example, a dog’s ears and nose
Source: Imore

Taco Bell, Pepsi, and other companies have realized what a great opportunity it is to tap young minds as well as their wallets. Since millions of millennials use Snapchat every single day, these companies are getting lots of exposure from regular people as they record their daily lives and publish their videos and images in the app. Whether it is a taco, a Gatorade or any other item, people are advertising the products of giant companies which means they are getting publicity for free. Moreover, this is happening in a single app which is Snapchat.

In Snap’s SEC filing, the company contended that it overshadowed other companies at targeted advertising. Snap Inc. gave an example by showing one of its paid ad campaigns which was to promote a particular brand of deodorant for men. Since Snapchat wanted to reach out to every single male user at the age bracket of 13 to 34, it was able to do so easily and without a single hitch. As a matter of fact, Millward Brown, a market research firm, confirmed that 88% of the advertiser’s target demographic had seen the ad and was able to get the message.

Additionally, users watch ads within the app with the music or sound on. This fact confirms the idea that all the advertisements in Snapchat are engaging to users and highly targeted. Meanwhile, Snapchat has given other brands the opportunity to create their own ‘sponsored lenses’ in an effort to produce revenue from their playful feature. The company formed a partnership with big names such as Kraft, bareMinerals, and Spotify, and the company enabled their advertisers to interact with the app’s users directly.

Despite Snapchat’s success, investors are still worried about the sole money maker of the app as it may be its biggest risk aside from being its biggest win. The company pointed out that advertising commitments are made short-term and there is a possibility that they won’t be renewed.