11 risks that keep Snapchat bosses awake at night

 
Emma Haslett
Follow Emma
Samsung 837 Hosts Tribeca Snapchat Shorts Premiere
Users: they're a scary bunch (Source: Getty)

Snapchat's hotly-anticipated IPO, which it filed for last night, has lifted the lid on the inner workings of the rather mysterious company. Not least the fact it believes it could be worth a stonking $25bn...

As with any IPO, its Securities and Exchange Commission filing includes a hefty list of risks investors should take into account before buying shares in the company.

Without further ado, here are 11 reasons the bosses of Snap, Inc, Snapchat's parent company, can't sleep:

Read more: It's official - Snapchat has filed for an IPO

1. Failure to retain users

The fact userbase is aged between 18 and 34 - that difficult-to-reach group known as millennials - means it relies on a people not known for its loyalty.

Engagement may be high (the average user has used Snapchat more than 20 times and spends 30 minutes on it per day) - but Snap, Inc listed competing products, software glitches and spambots as threats to user retention.

2. The whims of mobile phone makers and operators

Snapchat has no control over iOS, Android or any of the mobile operating systems it depends on - nor does it have any control over mobile operators, who could hit the company badly if they hike the price of mobile data. Governments are just as scary - they could easily censor or limit internet access, making Snapchat more difficult to access.

3. Google Cloud

The company admitted it relies heavily on Google Cloud for the majority of its computing, storage, bandwidth and other services. Any interruption to that service - or a price hike -would have a catastrophic effect on the business.

4. Failure to attract new advertisers

Snapchat said 96 per cent of its revenue in 2016 was generated from third parties advertising, a trend it expects to continue.

However, a fall in the number of users or time spent on the app by them, an inability to come up with new products or changes in its demographics that make it look less attractive to advertisers (ie. people's parents suddenly get involved) could lead to lower revenues.

5. Its founders

Co-founders Evan Spiegel and Robert Murphy own "a substantial majority" of Snap, Inc's voting decisions - and as the Class A stock which will be issued as part of the IPO won't have any voting rights, they will continue to run the show

That means the pair will have control over the election, removal, and replacement of directors and any merger, consolidation, or sale of Snapchat's assets.

"If Mr. Spiegel’s or Mr. Murphy’s employment with us is terminated, they will continue to have the ability to exercise the same significant voting power and potentially control the outcome of all matters submitted to our stockholders for approval," it added.

6. Lack of creativity


Spectacles is one of its newest products (Source: Snapchat)

In the face of Instagram, which has spent months unashamedly copying many of Snapchat's features, this is a very real threat.

In recent years the company has gone from being an app which simply erases pictures a few seconds after they were taken to include third-party collaborations such as Snapchat Discover, as well as face-changing filters, its Memories feature and even Spectacles, its ultra-limited edition 360 degree glasses.

"We may introduce significant changes to our existing products or develop and introduce new and unproven products, such as Spectacles or other technologies with which we have little or no prior development or operating experience," it warned.

"If new or enhanced products fail to engage our users, advertisers, or partners, we may fail to attract or retain users or to generate sufficient revenue." No biggie, then...

7. Market share

The battle against Instagram - and even the likes of Facebook and Twitter - is heating up, as each service competes for advertising dollars.

Snap admitted many of its competitors have "significantly greater resources" and "broader global recognition" than it does, as well as occupying "better competitive positions in certain markets" (although not, we should add, that crucial millennial market it is so strong in).

"Certain competitors, including Apple, Facebook, and Google, could use strong or dominant positions in one or more markets to gain competitive advantages against us in areas where we operate," it said. Such moves could include teaming up to integrate their products into one another, impeding Snapchat's accessibility or simply by consolidating.

8. Never making a profit

Like many tech giants, the company has incurred operating losses in the past, an fully expects to incur them in the future. In fact, it suggests it "may never achieve or maintain profitability" (although that hasn't been a problem for Twitter...).

9. HR

As with any business, if one of its key people departs, in particular Spiegel and Murphy, "business as usual" will be difficult, at least in the short term.

"The loss of key personnel, including members of management and key engineering, product development, marketing, and sales personnel, could disrupt our operations and seriously harm our business," it said.

Meanwhile, a failure to attract the right people in the first place is also worrying the company.

"As we continue to grow, we cannot guarantee we will continue to attract the personnel we need to maintain our competitive position. In particular, we intend to hire a significant number of engineering and sales personnel in Venice, California and surrounding areas, and we expect to face significant competition in hiring them and difficulties in attracting qualified personnel to move to the Los Angeles area."

Read more: UK’s first accredited digital skills academy celebrates first anniversary

10. The whims of investors

The company has only been around since 2011, and has only been making money since 2015.

"We have a short operating history and a new business model, which makes it difficult to effectively assess our future prospects," it said.

"Accordingly, we believe that investors’ future perceptions and expectations, which can be idiosyncratic and vary widely, and which we do not control, will affect our stock price."

11. Copycats

The Instagram issue again. The company said if it is unable to protect its intellectual property, the value of its brand will be diminished.

"If we are unable to protect our proprietary rights or prevent unauthorised use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could seriously harm our business." Ouch.

Related articles