Snapchat built traction in the U.S. before expanding its app to other countries. Over 43% of its daily active users came from developed markets in the U.S., Canada and the U.K. Global opportunities like China may be too large to ignore. But is the world’s most populous country beyond reach for Snap Inc.?
Today Snap Inc. kicked off its road show presentation, where investors will have the chance to ask CEO Evan Spiegel and his team how the company plans to expand in the future, according to the schedule posted by Business Insider. The disappearing messaging company is expected to price its shares on March 1 and IPO the next day.
In addition to competing with Facebook, Snap acknowledged in its S-1 filing that its product will be facing threats from international rivals. The Chinese internet giant Tencent, for example, has already formed a loyal user base in China’s social media space. Its QQ app appeals to a young demographic and allows them to take selfie pictures and videos that will self-distruct after a short period of time, just like Snapchat. The QQ platform has 877 million monthly active users in China (or 73 million daily active users), compared to Snapchat’s 161 million globally. As the Wall Street Journal puts it, Tencent’s QQ is the “closest thing to Snapchat in China.”
QQ is not the only messaging app that offers a Snap-like disappearing photo function. Facebook (FB) rolled out Instagram Stories in August last year for users to share videos that will disappear after 24 hours. It’s not hard to find a twin version of many U.S. apps currently blocked in China. For instance, Baidu (BIDU) is considered the Chinese equivalent of Google. Renren.com (RENN) or the WeChat Moments page runs like Facebook and Weibo is like Twitter.
There are other reasons Snap could have a hard time entering China. The Google infrastructure behind the Snapchat app will hamper its potential to expand “in a manner acceptable to the Chinese government,” says in its S-1 filing. Even if Snap is approved to operate in China, local services already dominate the market, leaving almost no room for foreign players to compete. The experience of Uber is a case in point. The ride-sharing app was never banned in China, but failed to survive local competition.
Like most social media companies, Snap relies almost entirely on advertising to drive revenue, via full screen video ads or sponsored geofilters. The U.S., where Snap is based, generated the highest advertising spending globally at $255 billion in 2016 and is expanding at 14% in the next four years, data from IDC show in the Snap filing. China came second at $86 billion in 2016 but is growing at 27%, almost twice as fast as the U.S.
Global companies eye the Chinese market for its fast-growing economy, rising middle class and consumer spending power. China could open a new revenue stream for Snap, but not until the government eases its media censorship.
The Pinstripe and Bowler Club shares information with MF Solutions Ltd.