Snap, Inc., the parent company of Snapchat has come a long way. In 2013, Snapchat's founders turned down $3 billion in cash from Facebook. At the time, the company had close to zero revenue and a little over one million daily active users (DAUs).
Fast forward four years: Snap filed its IPO at a valuation of $20 to $25 billion with 158 million global DAUs on Snapchat (69 million in North America) and a mere $404.5 million in revenue in 2016. Snap additionally reports a net loss of $514.6 million in 2016.
But Forrester is wondering: With a limited track record in revenue generation, an audience that skews young, and a heavy reliance on mobile ad revenue, is the optimism around Snap warranted?
Here's what works in Snapchat's favor:
- Snapchat is a sticky mobile app. Snapchat scores a 283 on Forrester's App Engagement Index. High for sure, but far lower than YouTube (692) or Facebook (1,000). Snap's community spends an average of 25-30 minutes per day in the app. That is a big chunk of the approximately 3 hours per day that millennials spend on their phones, and it's consistent with Forrester's analysis that consumers spend 88% of their time in just five apps. Brands should meet customers where they already are--in apps like Snapchat--because consumers are reluctant to download branded apps unless they use those apps often.
Here's what's working against Snapchat:
- Millennials still have no money. Millennials have very little disposable income, limiting the financial upside for brands targeting them. Millennials are burdened by school loans, can't afford cars or family lifestyles, and live at home longer.
Like any newcomer in this space, Snap has its work cut out for it. There are a lot of free apps looking to monetize eyeballs and data. Looking at the success of companies like Facebook, it is easy to dream big. Few see the labor that goes into attracting some of the best engineering talent in the world, the pivots in strategy and technology, a cultural that embraces failure to learn and grow fast and more.
This article is co-authored by Laura Naparstek, researcher at Forrester.