Potential investors want to know how Snapchat stacks up against rival Facebook’s Instagram app.

(Bloomberg)—Snap Inc. so far hasn’t been able to tamp down investor concern about user growth.

When asked about a slowdown in new users on its Snapchat photo-sharing mobile app in the fourth quarter, the company blamed a product issue with its Android version, according to investors who attended the company’s initial public offering roadshow presentation Tuesday in New York. Investors were skeptical of that answer, especially in light of rising competition from Facebook Inc., whose Instagram app recently launched a clone of Snapchat’s popular stories disappearing-video feature. Instagram’s stories has quickly amassed 150 million daily active users, just below Snapchat’s 158 million.

“Pointing to problems with Android is not addressing the elephant in the room, which is Instagram,” said Sean Stiefel, a portfolio manager at Navy Capital, who attended the presentation. “They sort of danced around the issues with user growth.”

How quickly the company is adding new users—and how engaged those users are—will be top of mind for investors as they weigh whether to buy into Snap’s stock at the $16.2 billion to $18.5 billion market valuation it’s targeting. That’s because the 7-year-old company hasn’t given many details on future plans outside of pushing toward profitability in its flagship Snapchat app.


Instagram’s stories, like Snapchat’s, are broadcasts of videos to friends, lasting 24 hours before they disappear. In its presentation Tuesday, Snap sought to differentiate the two apps, telling investors that people tap Instagram for different reasons than they do Snapchat, which they use for their most intimate friendships. But if Instagram’s stories feature does prevent Snapchat from building its audience, Snap will need a more significant explanation than Android product problems when it starts to give quarterly earnings presentations after the IPO.

Cloud spending

CEO Evan Spiegel, wearing a suit, tackled other pressing questions at the lunch event at New York’s Mandarin Oriental hotel. The company is aiming to raise as much as $3.2 billion in its IPO, with its shares scheduled to start trading March 2 on the New York Stock Exchange under the symbol SNAP.

After doling out entrance badges in the entryway of the 36th-floor ballroom, which was adorned in Snap’s trademark yellow, attendees had about an hour to ask questions and munch on boxed lunches. The room was tightly packed. Several of those who spoke after the meeting said they were impressed with Spiegel, whom they described as polished and prepared.

The Los Angeles-based company was asked about its cost structure, which involves heavy spending on cloud infrastructure with Alphabet Inc.’s Google division and Amazon.com Inc. Snap has committed to spend $2 billion with Google Cloud over the next five years and at least $1 billion with Amazon in the same period.


At Tuesday’s roadshow meeting, the company said it expects those costs to eventually decline as the tech giants compete on pricing, according to attendees. Snap also said it is open to building its own data centers in the future.

Spiegel also gave a glimpse of possible new uses for the content captured through the app. The CEO said the company would be capable of building three-dimensional maps of real-world places like Universal Studios or the Harry Potter theme park, according to people who attended the meeting.

While Spiegel didn’t say the company has plans to pursue mapping, the mention of such capabilities is one of the few tastes investors have gotten about potential future businesses for the so-called camera company.