What Investors Should Know About Snap’s Initial Public Offering

Snap, parent company of the Snapchat social photo sharing service, has filed papers for what could be the biggest initial public stock offering of the year. Here are some details from Snap’s filing.

Snap started as a mobile app, but the company argues that it’s much more. In its SEC filing, Snap called itself “a camera company” that’s trying to change the camera’s role in “the way people live and communicate.” Based on that description, it appears Snap also wants to continue expanding its Spectacles hardware operation.

Snapchat, the 5-year-old mobile app that started it all, sits at the center of Snap’s business. Snapchat enables users to snap photos or take videos and annotate them, which then can be set to destruct after a certain time. Snapchat also includes a Discover news feature and a Memories section that lets users keep the items they shared.

Spectacles, the newer of the two Snap divisions, sells stylish glasses outfitted with cameras. Users capture moments through their camera-equipped lenses and wirelessly share them through their Snapchat account. The Spectacles work with both iOS and Android.

Snap filed for its IPO Feb. 2 and hopes to raise $3 billion through the offering, which it will use to fund its operations and growth. If Snap can fetch that amount, it will be valued at more than $20 billion. Snap will be listed on the New York Stock Exchange under the ticker symbol “SNAP.” Snap has not announced when it plans to go public.

Snap revealed in its IPO that Snapchat currently has more than 158 million daily active users, with its user growth accelerating between 2015 and 2016. Snap reached 100 million users in mid-2015, it noted, and 150 million users about a year later. However, Snapchat’s user base growth now appears to be slowing.

The company’s demographic is young (between the ages of 18 and 34) and heavily engaged with Snapchat. According to Snap, its daily active users are on the app more than 18 times and spend between 25 and 30 minutes on the service during any 24-hour period. That’s the good news. However, Snap acknowledged that its users aren’t necessarily “loyal” and a largely teen demographic puts it at risk.

Arguably, Snap’s biggest problem is that it has never turned a profit—and doesn’t show any signs of turning things around. In 2015, Snap generated $58.7 million in revenue and lost a whopping $372.9 million. While revenue soared to $404.5 million in 2016, its net loss grew to $514.6 million.

Snap acknowledged in its SEC filing that it’s facing significant competition. Namely, Apple, Google and Twitter are adding features to their apps that in some way mimic its service. Facebook and the Facebook-owned Instagram are its biggest threats with Instagram Stories, which closely mimics what Snapchat offers, the company said.

Snap relies on some of its biggest competitors for essential services. In its SEC filing, Snap said it gets its computing and bandwidth from Google Cloud and has signed a $2 billion, five-year service deal with Google. In the event that relationship goes sour, Snap said, its business could be “seriously harmed.”

The company’s co founders are making sure they retain full control of the company. Under the terms of the offering, Snap is offering three classes of stock—A, B and C. Class A shareholders won’t have any voting rights, while class B owners get one vote per share and Class C shareholders get 10 votes per share. Snap co-founders Even Spiegel and Robert Murphy are among the biggest Class C shareholders and will continue to have full control after the company goes public.