Snapchat, All Grown-Up: 5 Things We Learned From Snap's IPO Filing

When a 2014 Forbes cover featured a grinning cofounder of Snapchat, the accompanying text described CEO Evan Spiegel as "the 23-year-old who told Zuckerberg to take his $3 billion and shove it." Snapchat had just turned away Facebook's acquisition offer, which was triple the amount the social network paid for Instagram in 2012.

The thing Spiegel was holding out for is happening now, after much anticipation: Snapchat's parent company, Snap, is going public, hoping to raise at least $3 billion.

By most reports, this is slated to be the biggest tech initial public offering in years. The listing is expected to value Snap between $20 billion and $25 billion — the highest valuation of an American tech company since Facebook.

Snap's filings with the Securities and Exchange Commission presented the first chance for outsiders to review the company's financials. Here's a quick summary from Reuters:

"Snap had $404.5 million in sales in 2016, up from $58.7 million in 2015. However, it had a net loss of $514.6 million in 2016, up from a net loss of $372.9 million in 2015. ... Snap had 158 million active users in 2016, up 48 percent from 2015."

The filings also had a few interesting tidbits. Below are five things we gleaned.

Snap may be the first company to discuss "sexting" in a stuffy SEC initial public offering filing.

That's because the history of Snapchat as a popular social app starts with parents worried about how their children were using the self-deleting photographs.

"Many people didn't understand what Snapchat was, and said it was just for sexting — even when we knew it was being used for so much more," the IPO documents say.

In the past five years Snap has become a social mainstay for its users, the majority of whom are between 18 and 34 years old. It has popularized funky selfie filters, as well as telling stories through a sequence of photos and videos — imitated later by Instagram. Last year Snap launched camera glasses called Spectacles; in Thursday's filings, Snap describes itself as a "camera company."

"We believe that the camera screen will be the starting point for most products on smartphones," the company says in its SEC filing.

Snap makes virtually all of its money through advertising.

For the past two years, advertising revenue accounted for an average of 97 percent of Snap's revenue. The company says most advertisers don't have long-term advertising commitments with Snap, something the company hopes to achieve.

As The Economist points out, this poses a new kind of challenge for the relationship Snap is building with its users:

"Although Snap encourages users to be silly on its app, it hopes to be taken seriously as a business. It will need to decide what approach it should take when using information about users to target ads. Mr Spiegel has called the practice 'creepy' in the past. Yet Snap may need to share more data about its users; Mr Spiegel has indicated that he may be willing to do this."

Unlike Facebook and Twitter, which pushed to keep growing users, Snap is focused on increasing the time and energy each user puts into the app.

In outlining risks related to its business, Snap repeatedly points out that its operations are best in places with affordable and abundant Internet access that's strong enough to constantly load video:

"Unlike many other free mobile applications, the majority of our users tend to be located in markets with high-end mobile devices and high-speed cellular internet," the filings read. These also happen to be the markets where advertisers pay the biggest bucks.

But these are also markets that eventually will run out of new users for Snapchat. So Snap says its strategy is to keep innovating the camera platform "in an effort to drive user engagement, which we can then monetize through advertising."

Snapchat's cofounders — CEO Spiegel and CTO Robert Murphy — will keep control of all stockholder decisions.

The two Stanford fraternity brothers have had this control because they own the majority of voting stock, and the IPO is structured to keep it that way — which Reuters points out is extraordinary:

"Existing investors will have one vote for each of their shares, while new investors will have no voting rights.

"Keeping tight control is common in companies closely associated with their founders, who often prefer to grow their business without being questioned by a broad array of investors. Still, offering a class of stock with no votes in an IPO is unprecedented."

Snap runs on Google.

For the vast majority of computing, data storage and other needs that go into running an Internet service, Snap says it relies on the cloud services of Google. Though the deal is not exclusive, Snap says it has committed to spend $2 billion with Google Cloud in the next five years.

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