Snap talks up exclusivity appeal to justify IPO price

Snap is doubling down on its appeal to a core audience of young mobile users who are turning away from television, as it prepares to take its business case to investors next week ahead of its initial public offering.

The focus on a narrow base of users, as well as the company’s potential to replace TV advertising, comes amid questions about whether the owner of mobile messaging service Snapchat can broaden its appeal and tap into wider advertising revenue streams to justify the valuation it has targeted.

The number of people who visit the site each day only increased by 3 per cent in the final quarter of last year compared with the preceding three months, continuing a sharp slowdown in its sequential quarterly growth rate and raising questions about the breadth of its appeal.

The slowing user growth has also prompted questions about whether Snap’s focus on how users communicate with a small group of their closest friends and family, rather than following Facebook in racing to build out the broadest possible network, will limit its reach.

In a video released online on Friday ahead of a roadshow with investors that starts next week, the Los Angeles-based company laid its focus squarely on handling the most intimate communication young people have in small groups. “We love when people are selective with the friends they add on our service,” said Evan Spiegel, co-founder and chief executive.

He also put a figure on the optimal reach of those personal networks for the first time: “We wanted to create a place where you feel comfortable talking to the seven most important people.”

Snapchat executives did not address the slowing user growth in the video, though Mr Spiegel addressed the concerns indirectly. “One of the challenges that we’ve encountered over time is to explain to people why bigger isn’t better,” he said, before taking a sideswipe at Facebook: “When we started our business, there was sort of this idea that on the internet the more friends you have, the more followers you have, the better your life will be.”

In another apparent dig at Facebook, Mr Spiegel described a product development process designed to throw out a small number of new services that users would value highly. “It’s not a ‘throw things at the wall and see what sticks’ kind of company,” he said. Facebook has made several failed attempts with new services designed to be “Snapchat killers”, though it recently claimed more success in emulating Snap’s Stories feature with a lookalike service on its own Instagram app.

Snap’s roadshow video also put the emphasis squarely on youth, although the company has warned in its filings with the Securities and Exchange Commission that its prospects with be limited if it can’t “penetrate other demographics in a meaningful manner”. Despite dozens of images of people taking pictures and sending messages over Snapchat during the 35 minute video, none show anyone outside the company’s core demographic holding a phone.

The company’s executives emphasised the potential to attract the attention of young users as they turn their attention away from TV, in particular letting it tap a booming mobile advertising market that will grow threefold, to $196bn, in the four years to 2020, according to data from research group IDC.