The IPO revealed the company is bleeding losses on cloud infrastructure and research and development
Snap Inc, the company behind mobile photo app Snapchat, has committed to spending $2 billion (£1.6bn) for the use of Google’s cloud infrastructure over the next five years.
The deal was revealed as part of Snap Inc’s move to go public with an initial public offering (IPO), which is seeking to raise $3 billion (£2.4bn) to fuel its future growth.
Despite the commitment to cloud spending and future growth, the IPO filing revealed that Snap Inc made a loss of $515 million (£412m) last year and only generated a revenue of $404 million (£323m) for 2016. The loss was mostly driven by spending on services from Google and research and development.
Snapping up the cloud
At a mere five years old, the growth of Snapchat has been stellar, with Snap Inc claiming the app has 158 million daily active users, and noted that its advertising revenue from such a user base is growing rapidly, despite it making a net loss.
For Google, the deal is a nice feather in its mother company Alphabet’s cap. The Google Cloud Platform lags behind Amazon Web Services and Microsoft Azure, given it was previously used as a means to support Google’s own services as opposed to being an infrastructure-as-a-service offering.
But with Snap Inc committing to spend a hefty amount with Google’s cloud, there third runner in the global cloud infrastructure could close the gap between its rivals.
The use of Google’s cloud by Snap Inc is also indicative of how the Google Cloud Platform is an attractive cloud service for software developer to use in order to support apps that are predicted to see massive and rapid growth in users.
For Google to continue to benefit from Snap Inc’s spending, the app company will need to make a success of its IPO. But the filing is brutally honest, and notes that its ability to measure Snapchat’s reach is “lumpy and unpredictable” and it’s short time in the world makes it potentially a risky investment.
“We have a short operating history and a new business model, which makes it difficult to evaluate our prospects and future financial results,” said Snap Inc’s filing.
Time will tell if the IPO enables Snap Inc to grow to the level it needs to secure healthy profits, and ape the financial success that Facebook has been enjoying of late.
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