Social Media Giants: Is Snapchat the New Facebook?
Source: Rupert Neate
Snapchat hopes its planned flotation in New York will value the five-year-old photo-sharing app company at up to $25 billion and turn its 26-year-old founder, Evan Spiegel, into the world’s youngest billionaire with a $5.5 billion fortune. It is the most eagerly anticipated technology initial public offering (IPO) since Facebook floated in 2012 turning its then 28-year-old founder, Mark Zuckerberg, into the world’s richest man under 30.
The similarities between Snap (the official name for the company that owns Snapchat) and Facebook are striking, and have got many financial analysts and advertising experts asking if Snapchat is the new Facebook.
How Did They Start?
Zuckerberg and Spiegel hit upon the ideas for their companies at university -- and then dropped out. Zuckerberg, a computer science major, began knocking up a website called Facemash, loosely based on Hot or Not, in his Harvard dorm room. The site evolved into Facebook but not without a legal challenge from the Winklevoss twins, who sued Zuckerberg claiming he stole their idea.
Snapchat was born out of banter between Spiegel and his Stanford fraternity brothers Frank Reginald Brown and Bobby Murphy. In 2011 the trio were discussing sexting and the need for a way to send pictures that disappeared.
As with Facebook, the genesis of the idea was disputed, and Brown sued Spiegel and the company. They settled out of court, with Spiegel, who was studying product design, and Murphy, a mathematics and computational science major, remaining majority shareholders with a 22.4% stake each.
How Many Users Do They Have?
Facebook had 900m users as it prepared for its 2012 flotation. Since then the social network has grown to 1.86bn monthly active users -- more than half the world’s population that has access to the internet. About 1.2bn check their Facebook accounts every day.
Snapchat has far fewer users, but the company claims they are much more engaged than Facebook’s. Snapchat had 158m daily users at the last count. Two-thirds of them check the app every day -- and the average daily user visits the app 18 times a day, spending an average of 25-30 minutes a day sending snaps and watching snaps from their friends, celebrities and advertising brands.
Snapchat is only accessible via mobile phone. Snapchat claims to reach 41% of all 18 to 34 year-olds in the US each day.
How Much Are They Worth?
Facebook has a market value of $373bn -- more than twice that of IBM. Facebook was valued at $104bn when it floated at $38 a share on the NYSE on 18 May 2012. Today the shares are changing hands at $131.
Facebook tried to buy Snapchat several times, and Spiegel has said Zuckerberg tried to force him to sell up. “It was basically like, ‘We’re going to crush you’,” Spiegel told Forbes magazine. Spiegel rejected Zuckerberg’s last $3bn takeover in November 2013. Facebook, which also owns Instagram, has since developed versions of 15 of Snapchat’s features.
Snap’s IPO filings show the company is planning to float its shares at a level that would value the company at $20-25bn.
How Much Control Do the Founders Have?
Snapchat’s flotation is unusual. The company is not selling any voting shares, so the founders will controversially keep total control of the firm even after raising public money. Facebook has a voting structure that gives the founders far more rights than other shareholders.
How Much Money Do They Make?
Facebook made a profit of $10.2bn in 2016, up 177% on 2015. Its total advertising income was almost $27bn. But Facebook only turned its first profit in 2009.
Snap, which is spending a lot of money on expanding its user base, made a net loss of $515m in 2016 -- up on the $373m it lost in 2015.
Where Does the Income Come From?
Both companies make their money from advertising at the expense of traditional advertising markets such as newspapers and TV.
Sir Martin Sorrell, chief executive of WPP, the world’s largest advertising company, has said his clients spent $1.7bn advertising on Facebook last year. That compares to $5bn WPP clients spent on Google ads, but is vastly more than the $90m spent on Snapchat.
Neil Campling, head of global technology research at Northern Trust Capital Markets, told CNBC: “Snapchat is likely on a faster growth path than either Google or Facebook. Their opportunity is enormous and just beginning.”
Snapchat has tried to differentiate itself from Facebook by not allowing adverts targeted directly at users’ interests or browsing history. “I got an ad this morning for something I was thinking about buying yesterday, and it’s really annoying. We care about not being creepy,” Spiegel said in 2015.
Facebook’s advertising is sold entirely by computer program. Advertisers can visit ads.facebook.com, plug in payment information and create an advert. Those ads can be targeted as narrowly or broadly as the advertiser desires, and can be billed in a variety of ways, from paying a flat fee for every thousand views to payments per click, per like and more.
Where Are They Based?
Facebook’s huge headquarters in Silicon Valley’s Menlo Park has a ‘green roof’ the size of seven American football pitches. The company employs more than 17,000 people across the world.
It is hiring an extra 500 workers in the UK in advance of the opening of a new HQ in London’s Fitzrovia, where it will have 1,500 full-time staff when it opens.
Snap has headquarters on Venice Beach, Los Angeles, where it has been based since it started in Spiegel’s dad’s house. From there, it has slowly eaten up available properties on Venice Beach, turning beachfront condos into offices and restaurants into cafeterias to service its growing army of staff.
Last month Snap announced plans to set up its international “hub” in the UK. The UK office, which has grown from six to 75 staff in the last year, will not only be the taxable base for Snap’s British revenue, but also for all revenue made in third countries which do not (yet) have their own local establishment.
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