Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Snapchat executives had a coherent message when they pitched the company's initial public offering: It will never be for everyone in the world. It didn't have and didn't want the global masses of Facebook with its nearly 1.3 billion daily users in every corner of the world.

Instead, Snapchat had a deliberate strategy to concentrate on people -- mostly young people -- who use its app avidly in North America, Europe and other places with robust mobile phone service and high-end smartphones that can handle the app's heavy reliance on video and other sophisticated technology.

Can't Compare
Snapchat has 166 million people using the app every day -- a figure that is dwarfed by big social media hangouts Facebook and Instagram
Sources: Facebook (for Facebook, Instagram, and Instagram Stories) and Snapchat

This focus was great, Snapchat pitched, because those countries are the ones with the largest markets for advertising, which is how parent company Snap Inc. makes nearly all its revenue. Those advertisers are also desperate to reach young people, which Snapchat has attracted in spades.

Less than three months after the IPO, Snapchat's mission statement is far less coherent. "We believe that Snapchat is for everyone," CEO Evan Spiegel said on an earnings conference call on Wednesday.

He said Snapchat develops its new creations for older people, not just the teens and twenty-somethings who now use the app the most. Spiegel also talked at length about how more of the world will be able to start using Snapchat as fast mobile internet service and high-end smartphones get into more people's hands in countries such as India. "We think over time, as connectivity grows, that more people will be able to use our products and really get value from them," he said.

That's Rich
Snapchat has one of the technology industry's richest revenue multiples
Source: Bloomberg
Note: The analysis included U.S.-listed technology companies with at least $100 million in annual revenue.

Which is it, Evan? Is Snapchat trying to become as big, global and ubiquitous as Facebook, or not? What we have here is a failure by Snapchat to consistently communicate its strategy, or a failure in its strategy, full stop.

Yes, it's true that Snapchat can focus today on people and advertisers in rich countries and at the same time lay the groundwork for its future in places where the majority of the global population lives. Spiegel, in response to analysts' questions, said the company was focused on North America and Europe first and then would expand the number of Snapchat users and revenue in the rest of the world. The implication is that Snapchat is relatively niche now but has ambitions to be big and ubiquitous.

That seems logical, but that's not really what Snapchat said even in late February when it discussed its prospects with potential investors. The company said at the time that it wanted investors to love Snapchat for its focus on a smaller group of devoted fans who use Snapchat 30 minutes a day, on average. The zeal of those Snapchat addicts, in countries with large pools of ad dollars, was the company's greatest asset.

"We benefit greatly from the fact that many of our users are in markets where we have the highest capital efficiency and monetization potential, allowing us to generate revenue and cash flow that we can then invest into future product innovation," Snapchat said in IPO filings. The company bragged that more than 60 percent of its daily users come from the 10 countries that are responsible for 85 percent of spending on mobile advertisements.

Money Matters
Snapchat has said its business will benefit from a base of users concentrated in the U.S. and other top markets for advertising spending
Source: ZenithOptimedia, 2018 advertising spending forecasts

That IPO sales strategy somewhat mitigated the inevitable and unflattering comparison to Facebook, which in the last 12 months added more daily users than Snapchat has in total. The pitch went that Snapchat is better because the vast majority of people who use Facebook -- and particularly all of Facebook's user growth -- is coming from countries where it will be tough to generate advertising sales. Snapchat doesn't have all the users in the world, but it has the most valuable ones, the IPO pitch went. 

Fast forward less than three months, and Snapchat still doesn't want people to focus on user growth, which increased by 8 million people from the end of December to March 31. (Facebook's daily user count increased by 57 million in the same period.) The whole company is oriented to get people who love Snapchat to use it more and more. But in the next breath Spiegel stoked hopes for user growth by discussing its potential to catch on with older people and people in developing countries. 

Facebook's World
Facebook added 194 million new daily users in the last year. That is more that Snapchat's total number of daily users.
Source: Facebook

Maybe the IPO strategy pitch was the company's bankers selling Snapchat's reality rather than its potential. It's not great if the message to lure stock investors was different than Snapchat's actual business strategy. Or maybe like the people who use the company's app, Snapchat doesn't know what it wants to be when it grows up. That's fine for a college student. It's not fine for a public company with one of the tech industry's richest valuations. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net