Is Snapchat the new Facebook?

Snapchat hopes its planned flotation in New York will value the five-year-old photo-sharing app company at up to $25bn (£20bn) and turn its 26-year-old founder, Evan Spiegel, into the world’s youngest billionaire with a $5.5bn fortune.

It is the most eagerly anticipated technology initial public offering (IPO) since Facebook floated in 2012 turning its then 28-year-old founder, Mark Zuckerberg, into the world’s richest man under 30. The similarities between Snap (the official name for the company that owns Snapchat) and Facebook are striking, and have got many financial analysts and advertising experts asking if Snapchat is the new Facebook.

Facebook had 900m users as it prepared for its 2012 flotation. Since then the social network has grown to 1.86bn monthly active users – more than half the world’s population that has access to the internet. About 1.2bn check their Facebook accounts every day.

Snapchat has far fewer users, but the company claims they are much more engaged than Facebook’s. Snapchat had 158m daily users at the last count. Two-thirds of them check the app every day – and the average daily user visits the app 18 times a day, spending an average of 25-30 minutes a day sending snaps and watching snaps from their friends, celebrities and advertising brands.

Snapchat is only accessible via mobile phone. Snapchat claims to reach 41% of all 18- to 34-year-olds in the US each day.

Facebook has a market value of $373bn – more than twice that of IBM. Facebook was valued at $104bn when it floated at $38 a share on the NYSE on 18 May 2012. Today the shares are changing hands at $131.

Facebook tried to buy Snapchat several times, and Spiegel has said Zuckerberg tried to force him to sell up. “It was basically like, ‘We’re going to crush you’,” Spiegel told Forbes magazine. Spiegel rejected Zuckerberg’s last $3bn takeover in November 2013. Facebook, which also owns Instagram, has since developed versions of 15 of Snapchat’s features.

Facebook made a profit of $10.2bn in 2016, up 177% on 2015. Its total advertising income was almost $27bn. But Facebook only turned its first profit in 2009.

Snap, which is spending a lot of money on expanding its user base, made a net loss of $515m in 2016 – up on the $373m it lost in 2015.

Both companies make their money from advertising at the expense of traditional advertising markets such as newspapers and TV.

Sir Martin Sorrell, chief executive of WPP, the world’s largest advertising company, has said his clients spent $1.7bn advertising on Facebook last year. That compares to $5bn WPP clients spent on Google ads, but is vastly more than the $90m spent on Snapchat.

Neil Campling, head of global technology research at Northern Trust Capital Markets, told CNBC: “Snapchat is likely on a faster growth path than either Google or Facebook. Their opportunity is enormous and just beginning.”

Snapchat has tried to differentiate itself from Facebook by not allowing adverts targeted directly at users’ interests or browsing history. “I got an ad this morning for something I was thinking about buying yesterday, and it’s really annoying. We care about not being creepy,” Spiegel said in 2015.

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