Snapchat's IPO Foreshadows Foray Into Hollywood

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Bobby Murphy (left) and Evan Spiegel

The message app, which makes its debut on the New York Stock Exchange in March, looks to raise billions to become an entertainment platform (if slowing growth doesn't spoil the party).

"Snap Inc. is a camera company," reads the first sentence of the mission statement in the IPO filing for Snapchat's parent company. But a closer look at the 6-year-old app's financials, which were made public for the first time Feb. 2, reveals a business more akin to a media company.

As Snap prepares for a March debut on the New York Stock Exchange that may value the company at about $25 billion, its media ambitions are what could set it apart from such social media rivals as Twitter and Facebook.

CEO Evan Spiegel has embraced the fact that Venice, Calif.-based Snap was built in Hollywood's backyard, turning what started as a tool for sending and receiving messages that disappear in seconds into a full-fledged entertainment platform, a sort of tech-enabled MTV for the connected generation. While Spiegel, 26, may not have media experience, he has tapped former Sony CEO Michael Lynton as the company's chairman and Hearst Magazines editor Joanna Coles as a board member. And today Snapchat has a much more robust content offering than Facebook and Twitter did when they were at this stage, though both have more recently embraced video.

Snapchat's Stories offers a curated collection of user videos and photos for big events, Discover is a portal for daily feeds from TV and editorial brands like CNN and ESPN, and Snapchat has begun to buy short-form shows from networks.

Advertising revenue sold around these products makes up nearly all of Snap's revenue, which in 2016 grew by 589 percent to $404.5 million. "It was very smart," says eMarketer mobile analyst Catherine Boyle of Snap's decision to buy and produce content. "There's a whole user experience that Snap is leading the way on. It has been a very big turning point for producers to realize they can create content specifically for these devices that doesn't have to mirror TV."

That early adoption is paying off among Snapchat's 158 million users. The mostly 18-to-34 audience spends an average 25 to 30 minutes on the app every day, and on average 10 billion videos are watched daily.

But operating as a product that caters to a small demographic also has its downsides. Snapchat might be reaching the limits of its user base. In the fourth quarter of 2016, it added 5 million new users, its slowest growth period since the third quarter of 2014. The launch of Instagram's Snapchat Stories clone could be blamed in part for the slowdown. "Our competitors may mimic our products and therefore harm our user engagement and growth," Snap notes in the risks segment of its filing. Slowing user growth has caused many observers to draw parallels between Snap and Twitter, which lost the confidence of many investors after several quarters of slow user growth.

But Pivotal analyst Brian Wieser says Snap could do what Twitter didn't and embrace its position as a platform for a young, influential demographic instead of chasing Facebook-like user scale. "It depends on how they spin it," he says, noting that Twitter has struggled in part because "they tried too hard to be something they weren't."

This story first appeared in the Feb. 17 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.