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Snap is about to have what is predicted to be the biggest IPO in years, where it may raise as much as $4 billion. The best way for it to justify such a high number will be to replicate the success of Facebook, which has been able to consistently grow its revenue, and its user numbers, since going public in 2012.
When it comes to user numbers, Snap is in a healthy position going forward, according to data released by eMarketer on Tuesday.
The company is expected to grow to 70.4 million users in the U.S., up 14 percent from 61.7 million in 2016, faster growth than was previously expected. In June of last year, eMarketer had predicted that it would have 66.6 million US users in 2017, a 5 percent difference from the earlier projections.
It should be noted that, even with that increase, growth will still be less than half of what it was the previous year; in 2016, U.S. users increased by over 33 percent from 2015. The company's growth rate will fall to under 10 percent in 2018, and will be down to just 3 percent in 2021.
What's most interesting about this is who those new users will be: older people. In 2017, eMarketer predicts that 6.4 percent of Snapchat's users in the U.S. will be between the ages of 45 and 54, up from the 4.2 percent that it has previously expected. That's a 52 percent increase from those previous projections.
At the same time, eMarketer is expecting younger users, meaning those 24 or less, to actually decrease slightly.
This isn't the first time that data has shown an increase in older people using Snapchat. Data from comScore in July showed that, in just three years, Snapchat grew 600 percent among those 35 and up group, going from 2 percent to 14 percent.
Ultimately, while having older people on its platform may make Snapchat seem less cool, getting those users onboard will be the key to its future success and stability.
By those metrics, Snap would seem to doing well for itself, except that it's main rival is going to do even better.
Snapchat was able to pull itself much closer Instagram last year, trailing its rival by only 6.8 million users. This year, Snapchat will capture 36.8 percent of US social network users, compared with Instagram’s 40.3 percent. However, the gap will once again widen over the next few years, eMarketer predicts, to 9.5 million in 2021.
That has to sting, given that Instagram has seemingly been on a mission as of late to take down Snap by copying a slew of its features.
Instagram unveiled a pretty blatant rip-off of Snapchat's Stories feature in August, with the company even going so far as to also called its new feature "Stories." That's how little the company was trying to hide what it was doing.
Like Snapchat's product, Instagram's Stories allows users to post moments from their day, creating a narrative based on their photos and videos. Then, again like Snapchat, they will disappear after 24 hours and won’t appear on the user's profile grid or in feed.
The poaching of the idea was so brazen that Instagram CEO Kevin Systrom even gave Snapchat credit for the idea!
That was followed by the introduction of Event Channels, which "collects the best videos from concerts, sporting events and more," taken by users. The company will then curate the best content to create the channel.
If that sounds familiar, that's because it's pretty much the exact same idea behind Snapchat's Live Stories feature, in which it collects photos and videos that are location based, as in all of the content will revolve around a singular event, like a concert. That content is then curated and turned into a channel.
Instagram not only took the idea, but actually improved upon it, making the channel personalized for each user, highlighting the events they might like. Instagram can do this because it allows its users to follow accounts. So, if someone follows Lady Gaga, for example, they would likely be interested in a channel based around one of her concerts. Snapchat isn't able to do something like that, and can't offer that same level of personalization.
This could be bad news for Snapchat. After all, Instagram does have the network effect on its side: the company reached half a billion total users in June of last year, with 300 million daily active users. That's double what Snapchat is said to currently have.
Snap currently makes all of its money from advertising, with products that include Snap Ads, which it describes as "vertical full screen video advertisements in the familiar Snap format." It also offers Sponsored Creative Tools, such as Sponsored Lenses and Sponsored Geofilters, in which the company partners with brands.
The company sells ads in two ways: "Snap-sold" which is advertising sold directly to advertisers, and "partner-sold," where its content partners sell to advertisers.
The percentage of Snap-sold advertising rose in 2016, from 87 percent to 91 percent, while partner-sold advertising revenue dropped from 13 percent to 9 percent. Currently, Sponsored Creative Tools are only Snap-sold, while Snap Ads may be Snap-sold or partner-sold.
From 2015 to 2016, Snap saw its revenue growing by nearly 7x, from $58.7 million to $404.4 million. At the same time, the company saw its net loss grow from $372.9 million to $514.7 million in the same time frame, a rise of 37 percent.
(Image source: mirror.co.uk)