Out of curiosity, I happened to be browsing Snapchat's IPO filing documents over the weekend. Snap Inc. is one of the most anticipated IPOs since Twitter in 2013. Many unicorn companies have been delaying the IPO for as long as possible as their strategy (eg, Uber Technologies) but Snapchat, under the auspices of Benchmark Capital, has decided to launch their IPO at a time when they are far from profitable.
The ones at a clear advantage in this IPO are the ones with preferred Class B voting stock, in which Benchmark Capital Partners (22.8%), Lightspeed Venture Capital (15%) and Mitchell Laskey, of Benchmark Capital (22.8%) own the majority of stocks with a liquidity preference.
My experience with Snapchat was like a fling that never materalised into a proper relationship. I had downloaded the app in early 2013, found the app quite cumbersome and buggy, got bored, then deleted it after a week. It was rather different from my long-term relationship with other apps like Cymera or KakaoTalk, which was fun to use with many photo and augmented reality filters to keep myself busy during those long queues at the bank or the waiting for the loo at a popular restaurant or in transit, where the only thing one could do was listen to music or look at one's mobile device.
Anyhow, it's no surprise then Snap Inc. has integrated many features of popular Chinese and Korean photo editing apps and messaging apps that utilise augmented reality to drive its advertising revenue, including its 'stories' feature, a defining feature of South Korea's KakaoTalk. In 2013, Snapchat was just another technically glitchy, clunky instant messaging app that had disappearing messages (a feature that no one wanted). Now, it considers itself a "camera" company that makes wearable devices (eg, Spectacles, a cheaper version of Google Glass) and augmented reality photo filters that copies from its best competitors (eg, WeChat, Cymera, KakaoTalk).
However, that is not how I would categorise Snapchat. I would categorise Snapchat as a new, revolutionary advertising agency.
Snapchat is an app that is an amalgamation of China's Tencent and South Korea's KakaoTalk with a bit of the Norwegian Opera browser added for is Discover news features. In other words, it's a plagiarism of all the popular apps and web browsers out there, or just a good research paper on modern communication in the Information Age.
But what Snapchat does that is different is that it gives a platform for advertisers to create new sorts of ads made specifically for the mobile phones. According to its SEC filing, Snapchat makes nearly 98% of its revenue on advertising alone. What Snapchat is really doing is not anything camera-based, it is a new model of the creative ad agency; an ad that is not just a lame banner on a website that one tries to ignore, or a short commercial on YouTube or on a TV that one mutes or skips, but an interactive ad, that lets people use it for fun to create brand awareness. Snap Inc. is a brand new kind of ad agency.
In its filing, Snap says that many companies did not want to create new ads for mobile but simply copy its television ads to put on mobile. Here is a great opportunity for Snap Inc. to actually produce the content and all the adverts for various companies on its mobile platform, but instead it focused on a Google flop, the Google Glass, rebranded as Spectacles. First of all, no one wants to see all the boring footage of a wobbly, non-stabilised image 10-30 seconds in length of an event that only directly uploads to Snapchat without any editing. If Snapchat instead created a music video generator app, like musical.ly, then that would be more interesting.
Kitschy and fun, Snapchat Spectacles is a cheaper version of Google Glass with a fashionista edge. The Spectacles let people record unedited video for 30 sec max.
However, no one wants to look at lame footage that looks like it was made for a reality TV series like COPS. No one cares, and no one wants to look at it. No one wants to wear annoying glasses either or be filmed wearing glasses because people are vain and want to edit and choose their best shots and footage, even supermodels.
Joanna Coles, the sole female board member at Snapchat receives $75,866 in stock awards whilst the rest of her male cohorts receive $1 million+.
Another red flag I find about Snap Inc. is that it could potentially have the perception of being seen as a "sexist" company. What kind of company would pay its female board of directors the lowest amount that is on such a ridiculously low scale which is completely an insult to women working in tech globally, whilst pretending to be a modern company that caters to a young demographic? Instead, what the pay scale shows is that Snapchat is primarily an app made for inebriated fraternity brothers who like to make themselves look like superheroes whilst drunk at the pub, and completely ignores half of its demographic: women. Why should I use an app that pays its sole female board member, $75,866 in stock awards whilst the rest of the male board members receive $1 million+? There are much better apps I could use, with a better UI and UX that does the same exact thing.
According to its SEC filing this month, Snapchat is entirely dependent on the services of Google Cloud Services, and will pay $400K+ yearly to Google for 5 years totaling more than $2 billion minimum.
And lastly, what the Snap Inc. SEC filings reveal is that the company is actually a slave to Google. By being completely dependent on Google Cloud Services, for which it will pay Google at least $2 billion in the next 5 years, it is limiting itself from competitive rates from other companies. However, this puts Google in an advantageous position against Facebook, whose competing app, Instagram is a threat to Snapchat. At best, Snapchat can plan its future acquisition to Google, but it made a grave mistake in solely choosing Google for its cloud services and limiting itself from other companies like Amazon, that could've give it brand awareness into the retail sector.
In conclusion, my assessment of Snapchat is that is not a camera company but a new kind of creative ad agency, it just doesn't realise it yet. As for the IPO, I would wait until the founders, advisers and investors actually figure out what the company does best; which is definitely not a disappearing message app nor a camera company.
Disclaimer: This post is not intended as any sort of investment advice and is for educational purposes only.