Tech

Snap Inc. Hopes To Keep A Step Ahead Of Rival Facebook

By Victor Thomson , Feb 22, 2017 02:36 AM EST
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In order to promote its initial public offering, Snap Inc. is making a daring proposition. The company said that it can build ad-friendly software features and hot-selling hardware gadgets fast enough to stay one step ahead of Facebook.

Snap Inc.'s Roadshow Presentation

Snap Inc. offered a roadshow presentation in New York, on Tuesday, Feb. 21. According to Bloomberg, Snap blamed a product issue with its Android version when asked about a slowdown in the fourth quarter in new users on its Snapchat photo-sharing mobile app. However, the company hasn't been able so far to alleviate investor concern about user growth.

In the light of rising competition from Facebook, investors were skeptical of that answer. Recently, Facebook's Instagram app launched a clone of Snapchat's popular stories disappearing-video feature. In just a short time from the launch, Instagram's stories have already amassed 150 million daily active users, a figure that is just below Snapchat's 158 million.

Instagram's stories, like Snapchat's, are broadcasts of videos to friends. They are set to disappear after lasting just 24 hours. In its presentation, Snap struggled to differentiate the two apps by telling investors that people use Snapchat for their most intimate friendships.

Outside of pushing toward profitability in its flagship Snapchat app, the 7-year-old company hasn't given many details on future plans. As investors weigh whether to buy into Snap's stock, they can only base their decision on how engaged Snapchat's users are and how quickly the company is adding new users.

Hardware and Cloud Spending

The cost structure of the Los Angeles-based company involves heavy spending on cloud infrastructure with Amazon.com Inc and Alphabet Inc.'s Google division. Over the next five years, Snap has committed to spending $2 billion with Google Cloud and at least $1 billion with Amazon. Snap also announced that it might build its own data centers in the future.

According to The Sydney Morning Herald, Snap Inc. is no longer just a purveyor of a smartphone app for disappearing messages. As it pursues its newly stated ambition to be "a camera company," Snap built a secretive product development lab, has hired hundreds of hardware engineers and scoured the landscape for acquisitions. These efforts are aimed at developing so-called augmented reality technologies and other hardware products.

Despite the specter of stiff competition for advertising dollars with a far-larger Facebook and heavy losses, Snap is seeking a valuation of up to $22 billion in its early March IPO. The odds against the Los Angeles-based company are long in this big game. For a company with its roots in social networking an software, there is little precedent succeeding in the notoriously difficult consumer hardware business.

Aside from Apple, few companies have made big profits on hardware. Wearable gadget and camera makers usually have much lower valuations than Snap is seeking. For instance, once-hot camera start-up GoPro has its stock now sitting 61 percent below its 2014 IPO price.

Snap first signaled its new focus on hardware with the September reveal of Spectacles sunglasses that come with an embedded video camera for posting to the Snapchat app. Last year, the company spent $184 million on research and development. This figure is nearly half Snap's revenue.

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