To fight off the increasingly popular Snapchat Stories, Instagram launched…Instagram Stories.  Now, that copycat strategy appears to have worked.

Last Thursday, Snapchat filed their IPO with a 170-page document.  Parent company Snap’s filing features some very interesting information about the company.

 

Per the filing, Snapchat sports 158 million daily users around the globe for its app alone.  However, compare that to 150 million people using Instagram Stories daily.  Furthermore, Facebook also reported that 400 million people use Instagram daily.

Snap is also aiming for an IPO valuation of between $20 to $25 billion.  Yet, according to Forbes, if the company actually received the $25 billion valuation, investors will pay 62x “trailing sales.”  Once again, compare that to Facebook’s current 14x sales.  While Snapchat is still growing, this valuation may in fact be exaggerated.

Last year, Snap lost $515 million due to slowing growth.  Is Instagram going in for the kill?

Snapchat’s Daily Active Users (DAU) also fell in the final two quarters.  In the third quarter, DAU growth fell 7%. In the fourth quarter, DAUs fell flat at just 3.3%. Snap can blame Instagram Stories for the loss.

 

In August, Instagram rolled out their version (read: clone) of Snapchat Stories, aptly called Instagram Stories. Prior to launch, Snapchat experienced strong DAU growth.  In the first quarter, DAU grew 15% and 17% quarter-on-quarter.

Snap didn’t attribute the strong dip to Instagram Stories. The fall in DAU, per Snap, was due to the lack of “product innovation.” In fact, company management frequently references product innovation as the main driver of engagement and user growth. In the IPO filing, management wrote,

“We believe that the flat growth in the early part of the [fourth] quarter was primarily related to accelerated growth in user engagement earlier in the year.”

The company also cited “technical errors” that appeared during product rollouts in the third quarter as inhibiting user growth. Yet, it’s difficult to ignore TechCrunch’s chart analysis.

Snap admits that it “[faces] significant competition in almost every aspect of [its] business both domestically and internationally.” The company also admitted Instagram Stories may be a strong competitor.

“For example, Instagram, a subsidiary of Facebook, recently introduced a “stories” feature that largely mimics our Stories feature and may be directly competitive.”

Forbes ended their analysis of the Snapchat IPO, cautioning investors.

“But I see many more risks to the downside than catalysts to the upside at that kind of price. Why not sit back and watch from the sidelines?”


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