Snap (Snapchat) Predicted to deliver $2bn in Revenue in 2018

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Feb 22, 2017
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With the upcoming IPO of Snap, which we recently covered, a focus on the company’s revenue and reach is understandable. Business Insider have revealed, having been informed by somebody briefed on estimates, that Goldman Sachs (NYSE: GS 223.53 0.48%) estimate the company could reach $2bn in revenue in 2018.

These figures are being cited by Goldman Sachs sales force when speaking to prospective investors on the current IPO roadshow. Also interesting are the projected figures on Snapchat’s daily active users, with the company predicting the social media app to grow from 153 million, as of the quarter ending September 2016, to 221 million in 2018.

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Here are Goldman’s figures including a comparison to 2016:

  • 2016 revenues: $404 million
  • 2018 projected revenues: $1.959 billion
  • 2016 daily average users: 158 million
  • 2018 projected daily average users: 221 million

Is it achievable?

What is noticeable is that the revenue estimate is a 500% increase on revenue from last year. In addition, the projection is for a 40% increase on 2016’s total daily active users. This contrasts with Snap’s own warnings from the Q3 report where they indicated that the end of the quarter was relatively flat. Of course that was a small period of time and this projection is for an increase of 40% over two years, which would still be the company’s slowest year on year growth.

Revenue increase will be the most interesting aspect of this growth. As we reported just a few days back, Snap have now begun selling Snapchat Spectacles online in the US from their own specialised website. This will be a large increase from their previous tactic of selling only through select vendors and pop-up-shops in New York City.

There is a strong chance that this rollout will increase revenue. Snap have also indicated that they expect the costs to exceed related revenue for the near future. The bulk of revenue increase will come from advertising, as it does right now. It’s this increase, and increases in the upcoming quarterly reports, that will indicate best if Snap can meet this projection. Should past revenue act as an indicator, you would imagine the company to manage this. 2015 showed just shy of $59m of revenue, with a 685% increase giving 2016 $404.5m in revenue.

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Of course the source of these estimations need to be taken in mind as Goldman Sachs is one of the lead banks on the Snap IPO. However, other analysts have also indicated similar estimations. This includes Atlantic Equities research analyst James Cordwell, also referenced by Business Insider, who estimated revenue of $2.16bn in 2018.

There’s certainly a fair amount of interest in the company and it is currently on its official IPO roadshow. Having visited the UK recently, there are a number of cities left before the plan to offer shares in just one week, on March 1st. Will it go the way of Facebook (NASDAQ: FB 152.13 0.11%) and be a huge hit, or another Twitter (NYSE: TWTR 18.23 1.56%)? Only time will tell, though projections are favourable compared to the latter.

Source: Business Insider

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