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2017-02-02 17:44:10
Snapchat Parent Showcases Its Strength in Preparation for I.P.O.

SAN FRANCISCO — Snapchat may have been built on disappearing messages. But as the social media darling hovers on the cusp of becoming a public company, its parent is trying to show how durable its business is.

In its first public prospectus, Snap Inc. disclosed on Thursday that it had built up a nearly $450 million advertising business in just over two years. While the filing does not indicate a price for an initial public offering, Snap is expected to seek a market valuation of more than $20 billion from investors.

Snap filed confidentially to go public with the Securities and Exchange Commission late last year. Making the filing public was one of the company’s final steps before it begins trading on the New York Stock Exchange under the ticker SNAP. If all goes well, the offering is expected to furnish its founders and early investors with a windfall.

Snap executives will begin formally meeting with prospective investors within weeks. The pitch is straightforward: The company is one of technology’s biggest success stories of late, and it is heading to the public markets amid a relative dearth of noteworthy offerings.

Others in Snap’s class of popular tech start-ups — like Uber, Airbnb and Dropbox — are not expected to begin selling stock on public markets for months or even years, as they are tied up with legal issues or are overhauling their businesses.

Snap, by contrast, demonstrated in its prospectus that its business model is viable. Its annual revenue grew by nearly eight times from 2015 to last year, to $404.5 million. And it had 158 million daily active users as of the last three months of 2016.

Martin Sorrell, chief executive of advertising conglomerate WPP, recently estimated that his company spent $90 million on Snapchat last year. He called Snap a “rogue elephant,” even as WPP deployed $5 billion to Google and $1.7 billion to Facebook in 2016.

“I would say Snapchat is the one thing that people look at and say, ‘Maybe that’s a third force that can counter the domination,” Mr. Sorrell said last month, speaking at a conference held by Citigroup.

Still, Snap lost $514 million last year, up from nearly $373 million. But one fundamental accounting difference between Snap and its rivals Facebook and Twitter makes it hard to compare their financials side by side. Those older social networks own their own server farms, so the expense of operating them does not show up as a line item in the companies’ financial statements.

By contrast, Snap rents storage and server space from Google. That monthly cost is a line item expense and could make Snap’s earnings look lower than its rivals’.

Started in 2011 in a Stanford dorm room, Snap has grown from a curio for millennials into a broad social phenomenon. The start-up, founded by Evan Spiegel and Bobby Murphy, was originally built for users to send self-destructing photographs and messages to their friends

But Snap’s ambitions have risen over time. It introduced ways for users to compile “stories” about their days and innovative filters that can transform faces to look like dogs or monsters — or, crucially, branded content like Taco Bell tacos.

“When we were just getting started, many people didn’t understand what Snapchat was and said it was just for sexting, even when we knew it was being used for so much more” the company said in its prospectus.

“Snap Inc. is a camera company,” the company declared in the filing.

And indeed last year, Snap introduced a line of camera-equipped sunglasses, Spectacles, which help funnel even more user content onto the platform. Snap also created Discover, allowing media companies to post content onto their own channels on the service. On Thursday, The New York Times Company announced a partnership with Snapchat Discover.

Unlike Facebook or Twitter, Snap has largely avoided many of the standard trappings of Silicon Valley. Its home base in not a Bay Area enclave like Menlo Park or Palo Alto, but off the beach in Venice, a Los Angeles neighborhood.

And though Mr. Spiegel, the Snap co-founder, has fashioned an image as an obsessive product geek not unlike Mark Zuckerberg, Facebook’s chief executive, he also poses for photographs in Italian fashion magazines. And the supermodel Miranda Kerr is his fiancée.

Mr. Spiegel’s vision has attracted a number of prominent backers who are expected to reap handsome rewards — if only on paper — in the initial public offering. Among them are investment firms like Benchmark Capital, which owns more than 10 percent of the company; Lightspeed Venture Partners, which owns about 6 percent; and Institutional Venture Partners, which has about 4 percent.

Snap’s offering is being led by Morgan Stanley and Goldman Sachs.