Financial Analysis: A Snapshot of Snapchat.Ranked fifth on the Wall Street Journal’s Billion Dollar Startup Club, Snapchat has become one of the most commonly used smartphone apps worldwide. With over 400 million “snaps” sent per day, the California based tech company has surged to become the second most downloaded app last year.

Executive Summary: Through several investing rounds, Snapchat has received over 16 billion dollars. Despite investor’s dumping their money into the tech startup, last year Snapchat operated a

loss of $128 million. Managing its losses, Snapchat is still sitting on a $320 million checking account. Snapchat recently hired Drew Vallero as acting CFO in a move widely believed to be in

preparation of an IPO.

Sure it has its teenage cult following and a deluge of selfies, but concern has been raised about Snapchat’s business model; what structure, if any, does it have for income generation? What are its plans regarding an IPO? How does it plan on capitalizing on its 100 million user fan base for revenue? Nobody doubts Snapchat is a giant among tech startups but like many startups, the biggest hurdle can be getting users to put forth their dollars.

Where the company startedPhoto-messaging app Snapchat gives users the ability to send pictures and videos which disappear forever after a certain amount of time. This ephemeral phenomenon was first launched in 2011 by then Stanford student turned CEO Evan Spiegel and two friends Bobby Murphy and Reggie Brown. Snapchat found rapid popularity among teenagers and users in their early twenties, the apps largest demographic. About one year after the app’s launch, it was discovered by Jeremey Liew of Lightspeed Ventures who gave the upstart company $485,000 in 2012 - Snapchat’s first investment. Three years and a handful of investment rounds later, Snapchat is valued at $16 billion, having caught the interest of venture capitalists from companies and firms such as Alibaba (BABA), Yahoo (YHOO) and Kleiner Perkins Caufield & Byer to name a few.

Even though investors have poured billions into the company, Snapchat has only recently turned its focus onto internal revenue generation. Let’s take a look at the company’s accounting statements and see what kind of operation Snapchat is running behind the scenes.

A Look at the NumbersIn 2014, Snapchat operated a $128 million loss. That being said, Snapchat has well over $300 million saved up and has no shortage of venture capitalists dumping their money into the company. Keep in mind also, that other prominent tech startups in similar states along their timelines were operating with similar numbers. Twitter (TWTR), for example, in the years before its IPO was facing a loss of $67 million in 2010 and $164 million in 2011. In a similar state of development to Twitter five years ago, Snapchat has still managed to acquire a 16 billion dollar valuating by investors even though last year they operated in the red.

Snapchat’s $128 million dollar loss in 2014 can also be explained partially by the company’s limited focus on income at the time. Having only been focused on ads and monetization over the last 10 months, Snapchat is just now starting down the road of revenue generation, which, with a customer base of 100 million daily users, is likely to be a long an profitable road indeed.

Company Finance Rundown.Despite its wide user base, Snapchat has only recently began to focus on creating revenue. Starting in October 2014, Snapchat announced it would start running ads on its app, which being free to use was heretofore not generating much in the way of income. These ads, which began appearing noninvasively at the bottom of the public updates section of the app, were meant to be “fun and informative” according to CEO Evan Spiegel and appeared to be a test run for future ad campaigns. Following this form, in January of 2015, Snapchat announced the launch of its “Discove r ” platform, a platform within the app which allows users to see recent news updates, articles and videos from 11 different contributors and of course, plenty of ads.

With the hefty asking price of $750,000 per 24 hour ad, Snapchat’s Discover ad campaign has proved to be a crucial break for a company that was otherwise coming up nearly empty handed in the realm of income. Fiscally speaking, Snapchat has a long was to go in the way of income streams, however, a report from Re/code claims the company is approaching a 50 million dollar revenue for 2015, a major, and frankly much needed improvement from its meager 3 million in revenue in 2014. In addition to this, the company speculates 200 million in revenue for 2016; capitalizing on next year’s presidential ad campaign alone.

Investors are Clamoring to get on Board with Snapchat.Even though Snapchat has been slow in the monetization game, investors have still valued the company at 16 billion, much to Mark Zuckerburg’s chagrin, no doubt. However, almost the entirety of that 16 billion comes from third party investors, not from internal revenue. Like many fledgling startups, the lifeline of income has come from investors looking to get in on the profits. Through several rounds of investing, Snapchat has skyrocketed from its first investment of $485,000 in March of 2012 to its latest investment round raking in a staggering $537 million, bringing its investment total to $850 million for this year alone.

In fact, demand for Snapchat has proven so fierce that in their last fundraising round, investors even accepted common stock instead of preferred stock for their money, a rare occurrence among VC practices. What this means is investors sought Snapchat so bad, they were willing to forgo privileges like voting rights and protection in the event of acquisition or liquidation so as to buy into Snapchat’s meteoric rise.

What about this IPO?

“We need an IPO. We plan to have that,” CEO Spiegel said an annual Conference with Re/code. Without getting into detail as to the timeline of this IPO, Spiegel told new sources that an IPO is a part of Snapchat’s future. In an effort to prepare for this, Snapchat recently hired Drew Vallero, former Mattel executive, to lay the groundwork for the public offering as well as manage the company’s new income stream from ads.

It is little surprise that a successful private tech company has ambitions of going public, however, with the question publicly raised, investors have come running to get on board.

Conclusion Snapchat has only recently been focused on creating revenue. Regardless, Investors see Snapchat as a hyper-growth tech startup and have been racing to get on board with its meteoric rise. After launching Discover, its first real monetization attempt, Snapchat went on to hire its first acting CFO; a move which indicates the company has been making financial gains in 2015. But as far as company revenues go, it clearly has no problem raising it, it now just needs to focus on how to make it.