How Snapchat makes money
How Snapchat makes money. Image credit: ISL.CO.

Snapchat’s parent company is reportedly preparing for an initial public offering (IPO) in the market, valued at $25 billion at the time of the bidding. The report comes from The Wall Street Journal which also claims the public offering could take place as soon as March 2017.

The unofficial account by The WSJ correspondents comes at a stale time for the U.S. market. A few companies have gone public, and the resulting valuations have not been too stellar. Snapchat’s IPO plan could represent a much-needed impulse to the market, especially at its estimated value.

Snapchat, as a company, started back in 2011, and since then it has seen an almost inexplicable growth until now. It has surpassed competing social platforms like Twitter, and it is still on track to keep enlarging its user base in the future.

Why is Snapchat worth $25 billion?

The thing about Snapchat is that not all people get the appeal, but those who do amount to 150 million active users daily.

Projections of Snapchat’s popularity suggest the mobile app will expand even further, making it one of the most used applications in the world. The secret to its success seems to lie in its simplicity.

While most people wouldn’t see the business in sharing pictures and media momentarily with others, Snapchat has perfected this model to take advantage of it to its fullest. The social app generates the bulk of its revenue from advertising in between snaps.

Given the fugacious nature of snaps, lasting between one and ten seconds and then disappearing forever, this gives marketers the opportunity to reach millions of target audiences several times a day, depending on how frequently users send content to their friends.

Snapchat’s ad revenue will hit the $1 billion mark in 2017

The Wall Street Journal reports this year’s Snapchat’s ad revenue ranged between $250 and $350 million. Sources close to the company told the business outlet that Snap Inc. has already exceeded those previous estimates at the moment of the report and that next year’s revenue is projected to hit the $1 billion mark.

The last approximate valuation of Snap Inc. a couple of weeks ago placed the company at nearly $18 billion dollars. The IPO announcement has not yet affected the estimated current value of the startup. By the time it does go public, a $7 billion surge to reach $25 billion would not be so far-fetched.

After all, The Wall Street Journal also notes this phenomenon has happened in the past, as companies that intend to go public see an increase in value while and after doing so. Sometimes as much as double their original worth.

Source: The Wall Street Journal