Snapchat parent Snap filed to go public today. Will it fly or die?
History doesn't give a clear answer. Until now, the social media category has been a tale of two companies, Facebook (FB) and Twitter (TWTR). Their stories are very different.
Facebook stock has shot up more than 240 percent since it went public in May 2012. Annual revenue and earnings per share have each grown by about sevenfold since then.
Most important, people have been flocking to the service: about 1.86 billion people use Facebook every month, the company reported in its fourth-quarter earnings call. At the end of 2011, it was 845 million. The number ticks up every quarter.
Twitter (TWTR) has had a rougher time. Shares are down almost 60 percent from their market debut in November 2013. Revenue has about tripled since then, but the company has never turned a profit — it reported a net loss of $290 million for the first nine months of 2016 (it won't report fourth-quarter earnings until February 9).
Twitter has also slowed way down on user growth. In the first quarter of 2015, it had 302 million average monthly users. In the third quarter of 2016, that number had risen only to 317 million, according to earnings report stats compiled by Statista.
In its filing on Thursday, Snap revealed some impressive revenue growth: it jumped almost sevenfold, from $58.7 million to $404 million, between 2015 and 2016. It also showed a pretty impressive chart of its daily active users by quarter. That number is growing at about 50 percent per year, and stood at 158 million in the fourth quarter.
Snapchat daily active users
Snap is also showing enormous losses — it lost more than $514 million last year, way more than Twitter was losing when it went public (Facebook was already profitable). Those losses are growing more slowly, on both a percentage and dollar basis, than its revenue, which is a good sign. But the only way it'll turn profitable is if revenue continues to expand a lot faster than its losses.
So growth is the key. Will Snap continue to grow like Facebook (FB) has? Or will it stall out at some point? That's what investors have to decide if they're going to make this bet.
One thing to consider is what core functions each company serves, and what the demand has been for the previous products that served those functions.
Technology companies like to portray themselves as doing something completely new, but the universe of human needs and desires is pretty constant.
For instance, Google (GOOGL) built the world's best research library. Amazon (AMZN) replaced a trip to the mall or the hardware store. The iPod replaced a Discman and a bunch of CDs. The iPhone, and the PC before it, replaced a bunch of different devices that performed single functions well, packaging them all together at one convenient and relatively cheaper place.