Snapchat debuted on the stock market this past Wednesday, and you could say the debut was well received. Priced at $17 a share despite a bank’s recommendation of $14-$16 a share, Snapchat closed out market hours selling for $24.53 a share. At $28.4 billion market capitalization, Snapchat is now the largest American-based tech IPO in history, second to Facebook.
Snapchat is one of my favorite apps to use, but as someone who works in marketing, I still question its value to brands and advertisers. My uses of Snapchat are as follows: to send friends 10 second excerpts of my surroundings or a selfie; to post a story for all to view; and to view the stories of friends on my timeline.
As I look at other people’s stories, I usually watch the first five seconds in full before clicking through the rest of the story so that it disappears from my timeline. It bothers me to have unopened stories, so instead of letting them sit there, I just click through them to get rid of them. No attention is paid, and I sure don’t stick around to watch the ads at the end of my friends’ stories.
I think Snapchat is a platform that inspires brands to come up with authentic and millennial-appealing content. However, I don’t think that Snapchat is the place for this content to live. On Instagram, when a brand posts content that is promoted and catches your eye- it’s easy for the user to click through to the brand’s Instagram account.
On Snapchat, the ad leading a user to the brands’ account is a lot more of a diluted pathway. I also think users pay far less attention to Snapchat stories than they do to Instagram videos and pictures. Because Snapchat is almost entirely video content, users’ attention span is a lot shorter. Instagram features mainly photos, so I think the users are inclined to pay more attention when a video shows up after 5 picture posts.
Another way Snapchat generates revenue is the “discover” portion of the app. I can’t tell you much about the Discover portion of Snapchat because frankly, I have never used it. I’m certainly not seeking out paid-for content, especially if the content will take minutes to watch!
Ultimately, if Snapchat’s IPO was valued based off of how many users there were and how much those users love the app, then I could get behind a $28.4 Billion IPO.
Given the app monetizes itself off of paid-for content channels (98% of Snapchat’s profits are from advertising), I don’t think this would be a worthy investment given the company has operated with net losses vs. revenue since it’s inception. Time will tell if investors will see a return. In the meantime, do you think Snapchat’s worth the investment? Leave your comments below.