Snapchat's parent company has an unusual pitch for a tech IPO: Size doesn't matter.
"One of the challenges that we've encountered over time is to explain to people why bigger isn't better," Evan Spiegel, Snap's CEO and cofounder, says in a new presentation to sell investors on its upcoming IPO.
"When we started our business, there was sort of this idea that on the Internet, the more friends that you have, the more followers you have, the better your life will be," Spiegel continued. "What we identified with Snapchat was people were really missing the intimacy of communication."'
While Spiegel stopped short of mentioning rivals Facebook (Tech30) or , Twitter (Tech30) by name, the implication is clear: a social network can be just as engaging even if you only use it to follow a few people rather than hundreds or thousands. It may even be more engaging. ,
That point is core to convincing investors to buy into Snap's IPO. The young company is looking for a valuation of up to $22 billion -- roughly twice Twitter's current market value -- even as it bleeds money and saw user growth flatline in the most recent quarter.
Snapchat had 158 million daily active users in the fourth quarter, a gain of just five million from the previous quarter, according to its IPO filing. Facebook, by comparison, had 1.23 billion daily users in the same quarter.
Snap will probably never beat Facebook in total users. So instead, it's trying to get investors to focus on the fact that the users it does have are very engaged and valuable.
"Our users come to Snapchat almost every waking hour," Imran Khan, Snap's chief strategy officer, says in the presentation. "The entire nature of our product is that it's active, not passive."
Snap executives repeatedly drive this point home with stats: Users check Snapchat 18 times a day on average and spend 25-30 minutes in the app. Most of those users also happen to be in the coveted 18-34 age demographic.
"We wanted to make a place where you feel comfortable talking to the seven most important people because those are the people you talk to all the time," Spiegel says. "That focus is what has driven a lot of the frequency of people using our service and the time they spend."
The presentation will be shown as part of Snap's roadshow, during which executives travel to key investment cities to drum up demand for its IPO. An IPO roadshow typically lasts about two weeks, suggesting Snap will go public in the first week of March.
Snap is looking to price its public offering at between $14 and $16 per share, raising more than $3 billion. Those funds would give Snap greater ability to compete for talent and acquisitions against larger Internet companies like Facebook.
But analysts and investment portfolio managers have already raised concerns that Snap might end up being less like Facebook than Twitter, whose stock has plummeted on user growth concerns.
By stressing user engagement instead of user growth, Snap may just be able to avoid Twitter's biggest pitfall: the tough comparison to Facebook's massive audience.
Snapchat isn't a billion-user service -- and its executives seem to think that's OK.