Daily Tech Snippet: Friday, February 3rd

• Snap shoots for the sky, promises little in $3 billion IPO pitch: Snapchat owner Snap Inc shot the opening salvo in its $3 billion initial public offering on Thursday, outlining aggressive expansion plans but offering new investors no say on how the company is run and no promise of profits. Snap's publication on Thursday of its IPO registration document sets the stage for its upcoming marketing campaign to convince investors to look past its widening losses and the firm grip of its founders, and focus on its rapid growth of active users. The number of Snap's daily active users grew to an average of 158 million at the end of December, up 48 percent year-on-year, Snap revealed. However, its net loss widened to $514.6 million in 2016 from $372.9 million the year before. While Snap will have time to polish its marketing pitch in the run-up to the IPO planned for March, some analysts were taken aback that the company was just beginning to reap cash from its product. "What surprises me the most is that it is still very early days when it comes to Snap making money," said Rohit Kulkarni, managing director at private securities investment firm SharesPost.Snap had $404.5 million in sales in 2016, up from $58.7 million in 2015. However, it had adjusted losses before interest, tax, depreciation and amortization last year of $459 million, compared with $292.9 million in 2015. Snap's biggest losses stem from "hosting fees" which it pays to cloud computing companies such as Google to use their infrastructure for its data. It will pay Google $2 billion over the next five years to use its cloud computing services. Because Snapchat users rely heavily on data-heavy pictures and video, the cost of these service is high. Still, the proportion of the company's costs to its revenue has been declining. Its strategy has been to bargain for better hosting rates as its growing number of users buoys its negotiating leverage. "They are adding infrastructure ahead of growth, and that is why you have some front-loading of losses," said SharesPost's Kulkarni.

• Snapchat growth slowed 82% after Instagram Stories launched: Snapchat was flying high in early 2016, but the launch of direct competitor Instagram Stories coincided with a massive drop in how fast Snapchat was growing, judging by new stats in its IPO filing. That aligns with our report that multiple analytic providers and social media talent managers saw a big decline in Snapchat usage after Instagram Stories came out. While we can’t be sure Instagram Stories directly caused the issue, its rapid rise is highly correlated with Snapchat’s slow down. The rise of international Snapchat Stories competitor Snow also could have contributed. Meanwhile, Snap says technical errors in the roll out of new products may have inhibited user growth at the end of Q3. In Q1 2016, Snapchat averaged 122 million daily active users, having grown 14 percent over the past quarter. Then Q2 proved to be its best growth quarter ever, thanks to massive interest in full-screen visual communication and a lack of direct competitors. Snapchat hit 143 million daily users with a whopping 17.2 percent growth rate. But on August 2nd, Snapchat’s much larger competitor Instagram launched an exact clone of Snapchat Stories at the top of its app used by 300 million people daily and 500 million people each month. By October, the feature had 100 million daily users of its own.Suddenly, Snapchat slowed down. It had its lowest percentage growth quarter since the beginning of its publicly available data in 2014. Snapchat grew just 7 percent in Q3 2016 to reach 153 million daily users. And in Q4 it sank further, as Instagram Stories reached 150 million daily users, just shy of Snapchat’s total number. Snapchat only pulled in an average daily user count of 158 million with a 3.2 percent growth rate in Q4. That means Snapchat was growing at just one-fifth of the speed it was two quarters earlier.

• What Snap’s I.P.O. Filing Reveals About the Company: "For the year ended December 31, 2016, we recorded revenue of $404.5 million, as compared to revenue of $58.7 million for the year ended December 31, 2015, representing a year-over-year increase of more than 6x. [...]we incurred a net loss of $514.6 million. We had 158 million Daily Active Users on average in the quarter ended December 31, 2016, an increase of 48% as compared to our Daily Active Users in the quarter ended December 31, 2015"

• Amazon sees lower operating profit this quarter, shares dip: Amazon.com forecast an unexpected dip in operating profit for the current quarter, sending shares down more than 4 percent due to concerns about the costs of investments including new warehouses and video content. The world's largest online retailer also reported lower-than-expected fourth-quarter revenue and missed Wall Street targets for its closely watched cloud computing unit.Net sales for Amazon rose 22.4 percent to $43.74 billion in the fourth quarter, compared with the average analyst estimate of $44.68 billion, according to Thomson Reuters I/B/E/S. Amazon is now producing television shows for Prime subscribers to watch online. It is developing gadgets with an artificially intelligent assistant, Alexa, so users can buy toilet paper and other goods by voice command. And it is building out a system of trucks, planes and warehouses so orders are sped to Prime members in two days or less, a convenience that few online retailers can afford to match. The company also said it was making a large investment in its India operation.Amazon Web Services, the company's fast-growing and lucrative cloud business, posted a 47 percent jump in revenue to $3.54 billion, but fell short of the average analyst estimate of $3.60 billion, according to FactSet StreetAccount. Amazon is the market leader in the space, selling computer services, hosting websites and storing data.