IPO Investors will have plenty of questions for Snap executives on the company's upcoming roadshow.
One issue that will surely have to be addressed: Why does Snap spend so much money on general and administrative items?
In the fourth quarter of 2016, Snap's G&A costs of $66.7 million accounted for 40 percent of revenue, a higher percentage than either research and development or sales and marketing.
This is a staggeringly high number for technology companies, which typically run heavy on the R&D (engineers) and, in the case of software businesses, sales representatives trying to land big contracts.
G&A is the boring stuff like accounting, finance and facilities — important things to get right, but not where innovation happens. It's not the secret sauce.
Facebook spent only 8.3 percent of revenue on G&A in the quarter before its IPO in 2012, and spent almost twice as much on R&D and sales and marketing. G&A accounted for 13 percent of Twitter's sales just prior to its IPO, while R&D made up over half.
Among other internet companies, Yelp spent 21 percent on G&A before going public, while Pandora and LinkedIn each spent 14 percent. Winding the clock way back, Google spent only 3.7 percent of revenue on G&A prior to its 2004 IPO.
Snap didn't provide much clarity in its prospectus. It said G&A consists of personnel-related costs, "including salaries, benefits, and stock-based compensation expense for our executives, finance, legal, information technology, human resources, and other administrative teams, including facilities and supporting overhead costs, and depreciation and amortization."
Headcount in G&A increased 220 percent in 2016, slightly faster than the company's overall employee base, which jumped 210 percent to 1,859. To accommodate all those new bodies, Snap has been opening offices in the U.S., Europe, Asia and Australia.
A spokesperson for the company declined to comment beyond the filing.
Perhaps some of the high costs were tied to the launch of Spectacles, the sunglasses-camera combo that Snap introduced late last year. And there were also accounting and legal expenses related to IPO preparation. But G&A was consistently high even before that.
One important factor is that Snap is going public at a very young age. The company was founded in 2011 by two Stanford University students, Evan Spiegel and Bobby Murphy, and as recently as early 2015 was generating just a few milliondollars in revenue per quarter.
G&A costs can be thought of as a company's infrastructure. Buildings, back-end technology and professional services are expensive early on and, relative to other expenses, should cost less over time.
"If you want to scale and you know the business is going to work, you try to scale it from the top down," said Robert Lang, CEO of Socialbakers, a social media analytics firm. "You build the infrastructure and build teams now, so you're geared for future growth."
That may be true, but investors will want more granularity into where all that cash is going. After all, they'll be betting on a company that lost more money in the fourth quarter ($170 million) than it made in sales ($166 million).
At a valuation that's expected to reach or top $25 billion, prospective shareholders will need some answers.