Snapchat parent warns of Brexit anxiety and sexting confusion in IPO filing

First public prospectus reveals a $405 million ad biz—and a net loss of $515 million..

Kelly Fiveash
Snapchat co-founders Evan Spiegel and Bobby Murphy. Say "cheese!" After all, you're a "camera company."
Timothy A. Clary/AFP/Getty
Snap—the parent company of the Snapchat app famed for its self-destructing message gimmick—hopes that Brexit won't cause it to implode on Wall Street after it goes public this year.
The UK's exit from the European Union was one of the risk factors highlighted by Snap Inc in its first public prospectus, which was filed with the US Securities and Exchange Commission on Thursday.
In 2016, Snap rapidly grew its business to bring in healthy ad sales just shy of $405 million, compared with $58.7 million a year earlier—but it has also revealed that it's operating at a considerable net loss of nearly $515 million, up from $373 million in 2015. At the end of last year, Snapchat's userbase stood at 158 million people interacting with the app on a daily basis.
Snap is seeking to raise $3 billion (£2.4 billion) for its much-anticipated initial public offering, which is expected at some point in March when it will begin trading under the "SNAP" ticker on the New York Stock Exchange. Its prospectus came on the same day that Facebook celebrated its 13th birthday, and in the same week five years ago that the Mark Zuckerberg-run company debuted on Wall Street with a wobbly start.
But Snap warned in its filing that Facebook's dominant force, alongside ad titan Google, could mean it might struggle to compete with those companies if they use their muscle to prevent the Venice, Los Angeles-based outfit from gaining access to various markets. It also hands a lot of its cash to Google—which is its "primary infrastructure partner."  Snap recently inked a cloud hosting deal with Google to the tune of $2 billion over the next five years.
The six-year old company founded by Evan Spiegel and Bobby Murphy has never made a profit. It recently confirmed that it was expanding its business in the UK's adland in Soho, London: an obvious choice of home for a growing free content ad network. However, puffing out its presence in Britain could yet be problematic, Snap admitted:
In June 2016, a referendum was passed in the United Kingdom to leave the European Union, commonly referred to as "Brexit." This decision creates an uncertain political and economic environment in the United Kingdom and other European Union countries, even though the formal process for leaving the European Union may take years to complete.
We have licensed a portion of our intellectual property to our United Kingdom subsidiary and intend to base a significant portion of our non-US operations in the United Kingdom. The long-term nature of the United Kingdom’s relationship with the European Union is unclear and there is considerable uncertainty when any relationship will be agreed and implemented.
Snap added that the "political and economic instability" in light of the Brexit vote could lead to "uncertainty regarding the regulation of data protection" in the UK. It also expressed concern about the free movement of goods, services, and people between the UK and the EU, and elsewhere.
"The full effect of Brexit is uncertain and depends on any agreements the United Kingdom may make to retain access to European Union markets. Consequently, no assurance can be given about the impact of the outcome and our business, including operational and tax policies, may be seriously harmed or require reassessment if our European operations or presence become a significant part of our business," it said.
But while the company warned that Brexit is a risk factor for its business, it made no mention—publicly, at least—about concerns with the Donald Trump administration, even as other US tech players have decried the US president's immigration order on seven majority-Muslim countries.
Elsewhere in the prospectus, Snap was keen to stress that It has been busy trying to shake-off something of an image problem.
"When we were just getting started, many people didn’t understand what Snapchat was and said it was just for sexting, even when we knew it was being used for so much more," Snap said in its prospectus. "We think this was because deletion by default was an unusual concept compared to what was standard at the time, so it took time for people to understand that we were trying to solve a problem that many people didn’t realise they had."
But, according to its SEC filing, Snap prefers to style itself with the more palatable (if somewhat disingenuous) tag of "a camera company."
Snapchat parent warns of Brexit anxiety and sexting confusion in IPO filing Reviewed by Bizpodia on 15:29 Rating: 5

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