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What Is Snapchat?

By Chris Neiger Fool.com

Image source: Snap Inc.

Let's start out with what Snapchat isn't. Snapchat isn't a fluke. It isn't going away. And it's certainly not something investors should ignore. At least, not at this point.

The company, which was recently rebranded as Snap Inc. (the Snapchat name now refers solely to the company's app) has 150 million daily active users -- that's more than Twitter (NYSE: TWTR)by the way -- and has been copied by Facebook (NASDAQ: FB) (remember Slingshot?). There are plenty of rumors that company may go pubic very soon (more on that later) and it's becoming increasingly clear that this company knows exactly what it's doing to build up its user base.

OK, OK, but what do you do with the app?

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Snapchatters (those who use Snapchat) send videos or pictures to their friends from the app, which can only be viewed for up to 10 seconds. After that, the content disappears. Users can also add their snaps (what the the messages are called) to their Stories section, which allows followers and friends to view them as many times as they want to, for up to 24 hours.

You can also add snaps to the newly created Memories section, which stores the snaps for you to view or share later. This feature caused a bit of a controversy when it was released a few months ago because it went against the ephemeral features that helped make Snapchat popular.

Older users may like Memories, which lets you store old snaps to view later. Video source: Snap Inc.

In the words of Snap's CEO, Evan Spiegel, the app is simply a way of talking. Spiegel said in a Wall Street Journal article last month that, "People wonder why their daughter is taking 10,000 photos a day. What they don't realize is that she isn't preserving images. She's talking."

In that sense, Snapchat is like other messaging apps. It's meant to be used frequently to "talk" with your friends throughout the day. But it's not meant to be a place to store perfectly edited photos or find out about your high school friends' recent political persuasions.

How you communicate in Snapchat

This is isn't a how-to article, so I won't dive into the nitty-gritty details of using the app, but essentially Snapchat lets users take a picture of what they are doing or of themselves (that's the snap part) and then edit it with text, drawings, or stickers and send it to friends (that's the chat part).

You can also use the regularly updated selfie lenses to take a picture of yourself as a dog, a pirate, alien, or even swap faces with a friend your sitting next to. You can also video chat with friends, send voice messages, or even send money through the app as well.

Here's a quick primer from the company's YouTube Channel:

Video source: Snap Inc.

Snapchat users can also view stories from brands like ESPN, CNN, MTV, and a myriad of others. Users can save some images to a Memories section for later viewing, but most of a user's snaps are gone forever after your friends view them.

This is typically the time when people start asking, "Why would anyone want to do this?"

I'm not an app developer, social media guru, or psychologist so I can't speak to that, but at the end of the day it really doesn't matter why people like Snapchat. It simply matters that a huge population of smarpthone users are flocking to the app, and it's likely to keep growing.

Snapchat by the numbers

Even after playing around with Snapchat, it can be difficult to fathom how this appeals to so many people. So if you're like me, and need some hard numbers to convince you of the company's staying power, take a look at Snapchat's impressive digits:

  • 1 billion Snapchat Stories are created every day.
  • Snapchatters spend 25 minutes to 30 minutes using the app every day.
  • 41% of 18 year old to 34 year old people in the U.S. use the app on a daily basis (the average U.S. TV network only reaches 6% of the same demographic).
  • The app has 10 billion daily video views.
  • Ads in the app are viewed between 500,000 to 1 million times per day.
  • 60% of all smartphone users are on Snapchat.
  • 70% of Snachatters are millennials.
  • 54% of Snapchatters use the app everyday.
  • The app has 150 million active users,and eMarketer predicts that will grow to 217 million by the end of 2017.

An IPO spectacle

Snap debuted its first hardware product just last month, called Spectacles. They're sunglasses that have a small, wireless camera embedded in the frame that allows Snapchat users to take pics of what they see, hands free.

Video source: Snap Inc.

Spiegel told the WSJ that the device is "a toy"so no, Snap Inc. is not trying to bring a Google Glass-like product to market. The company simply wants to create a new way to send images to friends. Spectacles costs $129.99, but will only be sold in small amounts to test out the waters.

The company's recent name change and introduction of hardware has helped spur more rumors that Snap is gearing up for an IPO. A separate Wall Street Journal article last week said that Snap is filing all the paperwork for an IPO that could come as early as this coming March, and that the company is looking at a valuation of $25 billion.

That's $22 billion more than Facebook tried to buy Snapchat for just three years ago. And higher than Snap's latest funding round which valued the company at around $17.8 billion.

Revenues from Snap are expected to be between $250 million to $350 million this year, and are expected to hit nearly $1 billion in 2017. It's not publicly known whether Snap is profitable at this point.

The company's revenue comes from selling ads in the app. The company says that the average swipe-up rate (an interaction with the ad) is five times higher than the click-through rate on social media platforms. Snap also makes money by selling location-based ads and branded selfie lenses. For example, Gatorade sponsored a selfie lens around the Super Bowl that was viewed more than 165 million times.

Snapchat isn't for everyone, yet

About 70% of Snapchat users are Millenialls, but it's not hard to see how that could change. The comparison between Facebook starting out just for college students is an obvious one.

As Snap continues to grow users and revenue, and gears up for a possible IPO, it's becoming increasingly clear that this company is no longer one you should ignore -- even if it takes a while to figure out why you'd want pictures of yourself looking like a dog.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.