Over the next five years, the company behind Snapchat will pay Google at least $2 billion in cloud bills.
On Thursday, Snap revealed in a that it signed a five-year contract to pay Google at least $400 million a year for cloud services. That’s a steep figure, considering that Snap made roughly $404 million last year.
In return for the massive commitment, Snap will receive reduced pricing, though it’s not clear how deep the company’s discounts will be. Sinking a bunch of money into Google Cloud makes sense, because Snapchat began its life built on top of Google’s AppEngine platform-as-a-service offering.
Furthermore, Snap’s commitment to Google is a massive vote of confidence in the latter’s cloud capabilities, at a time when there’s heavy competition in the cloud market.
that the company plans to launch new cloud data centers at the rate of roughly one each month this year.
All of this is tied to Snap’s plans to pursue an initial public offering in the near future. The filing released on Thursday is one of the company’s steps along that path. Snap’s IPO is being closely observed by the tech industry because of the company’s high-flying status.
It remains to be seen how Wall Street will receive the company, especially since it’s far from profitable and its losses have widened year over year. Plus, the deal with Google means that Snap will be saddled with hundreds of millions of dollars in liabilities for the foreseeable future.