An eMarketer report on the global mobile phone messaging market expects the global user base for over-the-top messaging services to grow from 1.4 billion in 2015 to 2.19 billion by the year 2019. Another report by GlobalWebIndex reveals that Facebook Messenger is the most widely used mobile app followed by Facebook-owned WhatsApp. Together, the two account for 70% of the user base globally. While Snap, formerly known as Snapchat, accounts for a modest 7% of global internet users, more than 40% of teenagers in mature markets like UK and US use it.
Los Angeles-based Snap has seen a meteoric rise since it was founded as a Stanford class project by Evan Spiegel, Reggie Brown, and Bobby Murphy under the name Picaboo. Based on its initial success, it set up shop as Snapchat. As of December 2015, the company claimed to have a following of more than 110 million daily active users who were using its ephemeral photo and messaging app. In March 2014, that number stood at 50 million. Recently, Snap has also said that its users are viewing more than 10 billion videos a day. Recently, it announced plans to diversify out of pure chat offerings, and rebrand itself as Snap.
Snap operates on a freemium model. It earns revenues through in-app purchases and premium services such as replies, along with advertising. The idea of earning revenues has been rather new to Snap. It was only in October 2014 that it began to experiment with revenue generation opportunities. Being venture funded, Snap does not disclose detailed financials. Analysts estimate that it earned $59 million in revenues in 2015 compared with earlier estimates of $100 million. Revenues are projected to grow to $250 million-$350 million this year, and up to $1 billion by 2017.
Based on these phenomenal revenue estimates, Snapchat’s valuation is also on the rise. It has been venture funded so far with $2.65 billion in funding from investors including Alibaba, General Atlantic, GSV Capital, Fidelity Investments, Glade Brook Capital Partners, York Capital Management, August Capital, Yahoo!, GIC, Kleiner Perkins Caufield & Byers, Coatue Management, Tencent, SV Angel, Benchmark, General Catalyst Partners, Institutional Venture Partners (IVP), Lightspeed Venture Partners, and Lone Pine Capital. Its last round of funding was held in May this year when it raised $1.8 billion at a valuation of $20 billion. An earlier round held in March last year had valued it at $16 billion. The company is now rumored to be gearing up for an IPO.
Snap has been using its latest funds to acquire other companies. Earlier this year, it acquired Toronto-based maker of personalized emojis Bitstrips for an estimated $100 million. Bitstrips’s emojis are known as bitmojis and are customized and shareable cartoon avatars. Users can download an app, and choose from a wide variety of face shapes, skin colors, and other features to create their caricatures. Bitmojis can further be enhanced through different poses and accessories and can be used in mobile messages. The acquisition will help Snap continue to deliver a messaging service that continues to be more fun. Soon after the acquisition, Snap also released Stickers that users can send to each other.
Another acquisition this summer was that of 3D photo app maker Seene, also known as Obvious Engineering. Terms of the deal are not known. Seene is best known for its computer vision technology that powers 3D facial capture, 3D scene reconstruction, and augmented reality capabilities. This is the second acquisition that Snap has made in the 3D space. Last year, it had acquired Looksery and then integrated it with its service to allow users to create 3D facial tracking masks, known as Lenses. Seene’s acquisition will help further Snap’s 3D and augmented reality ambitions.
Finally, last month, Snap announced the $110 million acquisition of mobile search app Vurb. Vurb’s search engine is extremely social. For instance, if a user searches for a movie, it will show movie times, theaters that it is playing at, and even nearby restaurants that the user can go to eat. Results are even personalized to the user’s tastes. It then allows the user to combine these options together and share with friends. It relies on its search results from other review sites like Yelp and Rotten Tomatoes and has also integrated well with Uber and Google Maps. It is not known how Snap wants to leverage Vurb’s capabilities on its platform.
Snap’s Hardware Foray
Earlier this week, Snap announced its plans to go into a new territory for its business – wearables. After rebranding itself as Snap, it announced the release of its first hardware offering – Spectacles. Like Google Glass, Spectacles will allow users to take videos and images of things around them. The sunglasses come with the ability to record upto 30 seconds of videos and will enable viewers to store these images and videos as memories in their phones and Snap accounts. They come equipped with a 115 degree camera lens that will be able to capture images very much like the human vision and that boasts of being the smallest wi-fi camera in the world. The sunglasses will retail at $129.99, making them more affordable than Google Glass. They will be available for users to buy later this fall.
Snapchat finally looks to be making interesting moves to justify its valuation. The recent acquisitions coupled with diversification into the hardware segment appear to be promising strategies, although we need to wait and see how the market responds to these moves.
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This segment is a part in the series : 2016 IPO Prospects