https://www.wsj.com/articles/snapchat-parents-ipo-filing-omits-monthly-data-1486580926


Snapchat Parent’s IPO Filing Omits Monthly Data

Missing monthly active user figures are key to determining if app will continue registering new users, some technology investors say

By RICHARD TEITELBAUM
Feb. 8, 2017 2:08 p.m. ET


There is at least one metric missing in Snap Inc.’s 230-plus page registration statement for its initial public offering, leaving some investors concerned about how best to assess user engagement.

The company provides figures for daily active users for its photo-based Snapchat messaging service. However, the filing doesn't include monthly active user figures, which some technology investors say are key to determining whether the app is likely to continue registering new users.

The omission of these figures raises a warning flag for some investors. “It’s giving a lot of cause for caution,” said Lou Kerner, a partner at San Francisco-based venture-capital firm Flight VC.

The lack of such disclosure may mean Snap’s engagement figures aren't as great as they appear at first glance, he said. “When they give you the data, it’s telling a good story,” Mr. Kerner said. “When they don’t give you the data, it’s a bad story.”

Snapchat had 158 million daily active users, on average, as of the quarter ending Dec. 31, 2016, up 48% from the same period a year ago, according to the S-1 statement.

According to Mr. Kerner and others, a more useful measure can be arrived at by dividing the number of daily active users by monthly active users to get a better sense of how closely tethered customers are to the service. The higher the number, the better because it shows that more frequent and engaged customers are making up a greater portion of a company’s user base. And over time, that ratio would give investors a sense of Snapchat’s trajectory.

Yet investors don’t rely solely on those metrics when making investment decisions and will always ask for additional data, said Kevin Landis, chief executive of the Firsthand Technology Value Fund Inc.

“The more transparency you give them the more the more they want,” said Mr. Landis, whose fund bought stakes in both Facebook Inc. and Twitter Inc. before their IPOs.

Snap didn't return requests for comment. “We assess the health of our business by measuring Daily Active Users because we believe that this metric is the most reliable way to understand engagement on our platform,” the company states in its filing. “It helps us understand if people are continuing to invest their time, energy, and creativity in our products.”

Snap’s selective disclosure makes it difficult to compare to other social media companies, said Kathleen Smith, co-founder of Renaissance Capital LLC, a manager of exchange-traded funds focused on new issues. “How are we sure we’re comparing apples with apples?”

Renaissance points out that at the time of their IPOs some of those comparable numbers were more positive for rivals than for Snap: Quarterly user growth was 7% at Twitter and 6% at Facebook right before their IPOs, versus 3% now for Snap.

Mr. Kerner said that in 2010, well before Facebook’s 2012 IPO, he looked at its ratio of daily to monthly active users, and saw an upward trajectory. He figured it would command about 12% of internet advertising revenue by 2014. Facebook’s IPO was priced at $38 a share. They closed Tuesday at $131.84.

And, in 2013, Mr. Kerner used a similar metric incorporating monthly active users in assessing Twitter, deciding that engagement with its users had peaked and was deteriorating. Twitter shares were priced at $26 at its IPO and closed Tuesday at $18.26.

Facebook and Twitter didn't respond to emails seeking comment.

Write to Richard Teitelbaum at Richard.Teitelbaum@wsj.com


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