Snapchat: a fortune foretold and a future untold

Freshly out this morning from CNBC:

Morgan Stanley analysts downgraded Snap on Tuesday, a day after the shares fell below their IPO price of $17. This is particularly insulting because Morgan Stanley took the Snapchat parent public, and therefore priced the IPO at $17 a share. The analysts are separate from the underwriters, but it still creates an awkward appearance.

It's ironic to see Snap being downgraded by the same bank that took its parent public. Kudos to Morgan Stanley for maintaining a high level of objectivity among its investment banking and research departments (CFA's Research Objectivity standards, anyone?)

We have been wrong about SNAP's ability to innovate and improve its ad product this year (improving scalability, targeting, measurability, etc.) and user monetization as it works to move beyond 'experimental' ad budgets into larger branded and direct response ad allocations."

As many monkeys and humans on WSO predicted, the Snap fad would burst very soon. It was just the matter of how soon. During pre-IPO time, we knew Snapchat wasn't making money, targeting a niche market, and going IPO at a ridiculously high multiple compared to its peers. All the hype was mostly about Snapchat's ability to capture its niche market in the digital advertising/social media market.

After the IPO, we have learnt that Snap's Stories feature (bread and butter) has been easily copied by Facebook and even Microsoft. Although Snap prides itself for constantly being copied by giants in the industry, it actually doesn't give itself a lot of branding power. What's good about the business then if its core feature is turning into a commodity? More critically, its business model is not as versatile as rivals like Facebook because Snap doesn't store users' snapped data. If it decides to store those data one day, that decision will just defeat the purpose of using Snapchat (privacy, spontaneity, etc.)

What's the future for Snap then? What's the catalyst to turn it around and gain a major position in the market ? Will it be bought out eventually? What's the consensus on mid/long-range price target?

Comments (278)

 
Jul 11, 2017 - 9:56am

I think once instagram stories become easier to browse, snapchat will die. I'm an avid user of snapchat, but if I can have one less app to use, I'm down.

 
Jul 12, 2017 - 7:37am

Snap's Q1 sales of Spectacles was so insignificant that it virtually disappeared in the income statement lol. It's neither an established advertising platform nor a data centre nor a focused camera-making company like Gopro. I can't think of a catalyst yet

 
Jul 12, 2017 - 11:37am

How was your takeaway from the sequence of events below that MS was being objective?

1: MS, prior to leading the IPO underwriting, sets price target above IPO price
2: MS catches an error that would lower the price below the IPO price a few days later. Announces the error, but makes an offsetting change to their growth rate such that price target is the same.
3: Market slams Snapchat
4: MS then decides to downgrade (i.e. just follows the market sentiment, as opposed to leading it)

Life's is a tale told by an idiot, full of sound and fury, signifying nothing.
 
Jul 12, 2017 - 10:10am

That series of event certainly shows signs of poor-quality work at MS research division. Although there is some gray area here, I think it doesn't give enough evidence for lack of objectivity. Given the pessimistic outlook for Snap, a downgrade was inevitable regardless market sentiment

 
Jul 31, 2017 - 12:31pm

I still like Snapchat better than Instagram stories because I feel like Instagram is a more public medium and I don't want to have to make mine private, but the gap is shrinking.

The thing I hate most about Snapchat is its inability to target information to me. When you go to stories and scroll down, you get shit from the Daily Mail, Mashable, Bleacher Report, etc. I don't care about any of this shit. I don't care about teens drinking meth, or what some Kardashian is wearing, or 10 ways to decorate your cat, or any of that garbage. It's 2017 - the internet knows every single thing I look up - and they should be able to tailor that shit to things I actually care about instead of what some 19 year old girl cares about.

Commercial Real Estate Developer

 
Jul 31, 2017 - 12:32pm

Snap Takes a Bath (Originally Posted: 05/11/2017)

Hey Monkeys,

I am currently kicking myself - being young and not accustomed to trading stocks, I had embarked a couple months ago on the task of familiarizing myself with the markets. I read up as much as I could on Netflix and Snapchat, mostly because these companies were the first that came to mind, and at the time, Snapchat's IPO was in the works so I thought "why not". I then opened an Investopedia account as a way of keeping numerical track of my "convictions" (I know, I know...put your money where your mouth is), and began reading everything I could find on EDGAR and in the press about the companies.

I have been bearish on Snap since the IPO - to me, it seemed inevitable that once the first post-IPO data was released, it would fail to meet the stellar growth expectations held by the market.

Over the past several weeks I have monitored it daily, first profiting off its decline from a post-IPO high of ~$27, and then noticing that it traded in the $20-23 band, with very strong support around those numbers. So, on the assumption that they would break out of this band on a decline when numbers came out, I opened a short position on the simulator around 22.50 a couple weeks back.

They released their data earlier today for Q1, and so far are down 23.46% in after hours, to almost below IPO prices. Needless to say, I am kicking myself for being right and not trusting my judgment enough to put my money where my mouth is.

If any of you guys have been paying attention to SNAP, what have you been thinking since the IPO? Would be keen to see what others (especially people who do this professionally) have been thinking.

To me, today's result has been on the horizon plain as day since IPO. But, in the spirit of the self-checking journey I originally embarked on, I'd like to hear what others have been thinking.

I'd also love to hear any advice professionals have for me going forwards, as I have learned my lesson about risk aversion and contacted my securities clearance personnel as of five minutes ago. Depending how much more deep the trough goes in after-hours tonight, I plan to go long once we hit the trough, which I expect will be sometime tomorrow.

Array
 
Jul 31, 2017 - 12:35pm

Just replied there. Ran a quick check on this topic and unfortunately didn't catch it - sorry for the dupe post.

Have commented over there so as not to steal their thunder.

Array
 
Jul 31, 2017 - 12:36pm

Catch the knife. Odds are in your favor.

Case in point - I bought a boatload of Yelp at $24.80 yesterday. Sold today for $28.40.
Easy money.

Also want to say, be very, very careful of shorting individual stocks.
I've seen guys get wiped out (and actually OWE money to their brokerage via margin calls) during a buyout spike.

 
Jul 31, 2017 - 12:42pm

Yeah, I would never short something directly, would definitely use options if I wanted to make that kind of trade for real. Will probably keep it simple and just buy at the trough of ludicrous swings like this until I understand options markets better.

Array
 
Jul 31, 2017 - 12:43pm

You think that the market is that short? I feel like based on the wall st research I was reading in the past few weeks and the range it was trading in, people wouldn't have expected a drop to 17 or lower. If anything the trading range has come up a little bit closer to 23 and change in the days/weeks leading to their Q1 press release.

Array
 
Jul 31, 2017 - 12:44pm

I mean, I personally think snap and it's ilk are grossly overvalued in the markets as well as culturally. But (at least based on time since IPO) for various reasons I think that in the near term the price is going to have enough volatility to be profitable while also trading within a pretty stable channel. That's the just the behavior of the market that I have observed so far.

For the past several weeks, the stock has basically been fluctuating pretty reliably across a range that represents 10% of the total value ($20-$23 range)

Believe me, I have no love for this stock or those fawning over it. The media's shrill denoncement of the stock today after the earnings seems so ludicrous, and asinine, and reactionary. Especially after watching them go all goo-goo for it not a few weeks ago when it was valued at $27 and all the Wall Street research muppets were giving it a "buy" for no cogent reason whatsoever.

But come on; it just lost a quarter of its value today. You don't think the bounce back is gonna happen before further cratering?

Array
 
Jul 31, 2017 - 12:46pm

I think long-term, the stock is going to trade in stable channels, but that these channels will move up or down periodically based on the numbers coming out every quarter for the next few years--at least, judging on the price movement so far. They're "projected to be profitable" by 2020, so I think the market has an appetite to hang on and trade on the quarterly data until then. Guessing the direction of channel movements is probably how I'll try to make money; but I think swing trading could be done done on the channels during each quarter.

So yeah, patience to wait and ride the movement is key, I would agree.

Long term, best case scenario, I see Snapchat getting acquired for something good but still essentially modest, relative to the IPO appetite. All these young ceos with cool ideas/poor business acumen are pioneering how to monopolize attention and convert that into ad space as a business model, and relying on the contracting cash reserves of a dwindling number of private funds to fund their quest for critical user mass.

Im not sure that the war chest from their IPO is enough for snap to combat their competitors, like Facebook/Google who have already attained profitability in their core business units and are essentially reinvesting the dividends from these units in this competition, annually, in a bid to consolidate market share.

Sorry, but when your business model's moat is as shallow as "I can grab a teenagers attention more effectively" and your technology can then be duplicated by competitors, you're essentially wagering that your innovation can persist indefinitely while sustaining hangers-on. Not to mention the economies of scale that are conferred on their competitors.

Array
 
Jul 31, 2017 - 12:51pm

Books (on this subject) that I have read:

  1. The Intelligent Investor
  2. The little book that beats the market
  3. Lots of other "casual" books about the markets, the type of stuff written by journalists.
  4. Lots of academic papers on specific trading strategies, financial crisis analysis, etc.

Open to any suggestions you have. Not too happy you just did a drive by monkey-shitting on me without a reference point, though.

Array
 
Jul 31, 2017 - 12:58pm

Snapchat's setbacks vs its foreseeable growth (Originally Posted: 06/03/2014)

Snapchat is a staple of social interaction for millennials. Since its inception, it has grown with significant speed and is continuing to grow. As an undergraduate, I have noticed surprising growth in the application use. Whether it was in highschool or college, a staggering majority of my colleagues and classmates make use of this application. As of right now, other than applications meant for texting such as iMessage or SMS messaging, the most used applications among all of the college students, young adults, and teenagers I've spoken to are Snapchat and Instagram.

However, the CEO is currently under fire for e-mails sent out during his earlier days as a fraternity brother. His profane statements currently depict or depicted him as one who has thoroughly disrespected women.

While Spiegel has apologized for his actions, many things come into question. How will this affect investors, especially companies led by female CEO's? How does this attribute to Snapchat's CEO's level of maturity? The main argument against his apology it might seem, is that Spiegel is merely 23. His fraternity days were far from long ago.
In recent years, Snapchat has stumbled upon a few problems with the US Federal Trade Commission and turned down a $3B acquisition offer from Facebook. The question that comes to mind now is whether or not Spiegel should step down and allow someone with more expertise or experience to manage the company.

Looking from Snapchat as a purely business venture and at the capacity for growth, it appears that Snapchat has much more potential and that there will continue to be growth regardless of these mistakes. Applications such as Facebook and Twitter still dominate Snapchat in terms of number of users. However, there has been a significant decrease in the number of younger facebook users and Twitter has seen significant decreases in user growth. It appears that the entertainment derived from these applications have been translated into new forms such as Snapchat that are potentially more user friendly and simplistic.

The original idea of Facebook was to display pictures and share statuses and so on. With Snapchat providing short term picture sharing and Instagram showing long term picture sharing, Facebook is no longer as appealing when the capabilities are very basic and limited in comparison. The statuses are another problem. While you may enjoy the witty status your friend or liked page posted, they tend to become over bearing and worthless in the long run. Motivational quotes, small thoughts, or rants don't tend to draw the interest of other users but rather push them away. Anything important that could be said would be sent privately through text message or call. Overall, there appears to be a negative trend in Facebook and Twitter for younger generations and a significantly positive trend in companies like Snapchat.

**This all being derived from the years of experience with all of these applications and noting consumer behavior around me.

The question now is whether or not investors believe that Snapchat's momentum will be reduced by this setback and, if so, how significant of a step Spiegel may need to take to fix these problems.

 
Jul 31, 2017 - 1:01pm

I don't see snapchat being profitable either, I don't see selling banner ads yielding a $3bn valuation.
.
on another note, the email in question was legendary
http://valleywag.gawker.com/fuck-bitches-get-leid-the-sleazy-frat-emails-of-snap-1582604137
.
shopping list:
3 kegs
5 plastics
plastic shot glasses
~1 oz marijuana
~1 kilo of blow
...
"I'll roll a blunt for whoever sees the most tits tonight."
.
if anyone on this site was in a fraternity, I'm sure you've seen/sent emails like this, I don't think it's a big deal, just not very timely.

 
Jul 31, 2017 - 1:09pm

jojome:

You can't cash out. That's not how VC funding works. He probably has a really strict guidelines on where the money goes. Also, he never actually had 3 billion, he had a seed round at a 3 billion dollar valuation. For example if he got 300 million dollars, he would exchange that for 10% of the company.

FB offered to buy Snapchat for $3bn cash. Change of control=he can do whatever the fuck he wants.

http://www.forbes.com/sites/jeffbercovici/2013/11/13/facebook-wouldve-bought-snapchat-for-3-billion-in-cash-heres-why/

 
Jul 31, 2017 - 1:12pm

Future of SNAP? (Originally Posted: 04/13/2017)

I have been following SNAP for a while from way before pre-IPO to now. I knew that their overall growth was stagnating, as well as their revenue per user in comparison to other tech companies was low, but now with Instagram overtaking their total number of daily users, what can we expect? Will they someone bounce back with a frat star CEO Evan Spiegel, or will the become twitter and eventually fade out in terms of equity value? Too early to tell?

 
Jul 31, 2017 - 1:14pm

In the long run I don't think it's a big growth stock. The big hold back is that it's an application based entirely upon one small feature of social media that is entirely unoriginal (multi-media messaging). As a user I feel like they've already stretched the features of the application as far as they can go, and I don't know if they can do a whole lot more to monetize it either.

 
Jul 31, 2017 - 1:15pm

From my experience as a student, no one I personally know actually uses Instagram's or Facebook's story features. I'm not sure their announcement from today is that big of a deal. Growth from new users may have stagnated a bit, but SNAP has consistently out-innovated Facebook and Instagram.

For the youngest demographic of users, neither Facebook or Instagram even comes close to SNAP in terms of daily engagement. Monetization could be a problem, though. Long-term, I don't see it ending up like Twitter, but it probably is too early to tell.

 
Jul 31, 2017 - 1:16pm

With Snap Inc SNAP 1.53% prices in the red - days after the social media platform's splashy $24 billion IPO and subsequent cold reception from analysts - one looming question is how the app will monetize its 150 million daily users going forward.

Pricing for national integrated Snapchat ad videos runs about $10,000 a month, according to the digital marketing agency Wallaroo Media; between $450,000 and $750,000 a day for sponsored lenses; and $50,000 a day for Snapchat "Discover" ads. The cost of sponsored geofilters is unknown, according to Wallaroo, but the agency estimates it at about one-fifth the cost of a sponsored lens.

napchat's transformation from a couple guys in a beach bungalow into the kind of place that hires people from Motorola is part of a broader industry trend: It is, in effect, no longer possible to be just an app, or even just a software company. The announcement in September of Snapchat Spectacles, which allow you to press a button on a pair of rather chic-looking sunglasses and upload a ten-second video directly to Snapchat, was the culmination of a year of hardware launches by Web 2.0 software companies: Facebook started a drone project and a hardware lab; Uber bought a self-driving-truck start-up; and Google, after partnering with LG and Samsung on Android, introduced its own in-house Google Pixel phone.

 
Jul 31, 2017 - 1:17pm

Snapchat CEO Evan Spiegel's $3 Billion Rejection Letter to Facebook's Mark Zuckerberg (Originally Posted: 11/17/2013)

Yo Zuckerbro,

I wanted to hit you up personally to tell you how gutted I am that stuff didn't work out between Facebook and Snapchat. It's a bummer, but Facebook just isn't the smexy young hookup we're looking for, $3 billion or not. Sorry to be a buzzkill.

I'm sure you get it, brosepher. You can probably still remember being a hot-to-trot brogrammer, back in the day, when you were still 23. Remember how, when you weren't hella old, shit just kind of came to you, like how you had your hand on the pulse of digital innovation, or how your parents gave you a brand-new Escalade, and then pulled strings so you could park it next to your high school?

We both know what it's was like to be a little too badass for college - you for Harvard, and me for Stanford. We also both know how to party hard in Palo Alto. I bet your ragers with Sean Parker are pretty similar to the stuff that got my frat, Kappa Sigma, kicked off campus.

And then there's the fact that we're both total geniuses. You came up with Facemash to look at pictures of chicks, and I invented Picaboo so hotties would send me nude selfies. You crushed it, and after one thing led to another, your company became the new hotness. But then your classmates got all greedy, and started claiming that maybe you kind of screwed your certified bros out of a lot of money. What even is that? We've both been there, brogellan. Good thing we're too rich to care.

That's why you'll totally understand that the reason Snapchat couldn't take your money is that - no offense, bro - it's 'cause even though we don't have any kind of revenue stream, in a few years, our mascot, Ghostface Chillah, is going to be all kind of dancing on Facebook's grave. I'm sorry, but kids just don't do Facebook anymore, Zuck. You're like Tom from Myspace. Or what was that other thing our parents had? Friendster? Did they have a mascot?

I get it. It's hard out there for a disruptive technologist pimp. Not everyone can create an app that perfectly captures the ephemeral and fluid nature of human communication. After all, aren't sexts just back-alley flashing made digital? Doesn't the transience of Snapchat's dick pics mirror that of Anthony Weiner's political career?

But bro. Bro. Don't sweat it. I am like 100% certain that your next startup will be huge. If you haven't come up with an idea, you should totally start shopping around for one. I hear Uber drivers have some bitchin' schemes these days.

Boom.

Warm brogards,

  • Evan Spiegel, Snapchat co-founder and CEO

I highly doubt this is real, but either way it's hilarious.

 
Jul 31, 2017 - 1:30pm

Instagram Will Eat Snapchat's Lunch (Originally Posted: 02/22/2018)

IMHO, the recent update they did really screwed Snapchat's user growth. I understand why they did it but the relearning curve for it is so high that I think users are going to be dropping out and just posting on IG stories. IG's already been nipping at Snapchat's bud and now this update will cause irreversible damage. Even influencers like Kylie are publicly stepping away from it. If I were Facebook, I'd be spending more money to get influencers on IG stories exclusively while the feelings on the new platform for Snapchat is negative.

Check out my blog EjAhead.wordpress.com
 
Jul 31, 2017 - 1:31pm

On the other hand, Instagram may become "the next facebook," both with the good connotations of that as a business but also the bad. My grandma follows my instagram. So does my boss. Neither one of them use snapchat.

So a cool sunset scene from the top of the 50th floor? That can go in my instagram story. My buddy shitting his pants blackout drunk? That's snapchat and only snapchat.

Commercial Real Estate Developer

 
Jul 31, 2017 - 1:34pm

Wall Street Is Obsessed With Snapchat (Originally Posted: 06/13/2013)

Once, Wall Street bankers communicated with pagers. Then Bloomberg terminal instant-messages came along, followed by BlackBerry's BBM function. Now, a growing number of Wall Street workers are becoming attached to another messaging platform: Snapchat.

Snapchat, the mobile app that lets you send self-destructing photos to your friends, is taking Wall Street by storm. After becoming popular with high school students last fall, the app has recently begun drawing in a set of young, privacy-conscious financiers. In an industry where a stray Facebook photo of a drunken escapade can get a junior banker fired on the spot, Snapchat's disappearing photos have made it a useful tool for Wall Street's party crowd.

"It's absolutely blowing up right now," a former banker and current business school student said. "People are generally sending shots of cubicles, laptops, airports and other motifs of corporate life."
"Over 75 percent of the snaps I get are from bankers," concurred one frequent Snapchat user. "It's usually the way we use texts – like, 'at a bar,' drawn over an image, to show that they're out."

From Kevin Roose at nymag.com http://nymag.com/daily/intelligencer/2013/06/wall-street-is-obsessed-wi… (see who's quoted at the bottom of the article...)

WSO's COO (Chief Operating Orangutan) | My Linkedin

 
Jul 31, 2017 - 1:38pm

heister:

Not to mention that you can save a snap pretty easily now.

yeah, i can see the appeal of having something "disappear"...but in the 1-2 cases you may really need it to disappear and it doesn't and/or someone does a quick screen capture, could be pretty damaging.

 
Jul 31, 2017 - 1:39pm

WallStreetOasis.com:

heister:

Not to mention that you can save a snap pretty easily now.

yeah, i can see the appeal of having something "disappear"...but in the 1-2 cases you may really need it to disappear and it doesn't and/or someone does a quick screen capture, could be pretty damaging.

Snap chat is actually coded to prevent screen capture, however there are apps that let you record anything on your screen at any time.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Jul 31, 2017 - 1:40pm

The people that I know who use snapchat pretty much use it exclusively to send nude photos of themselves. I've never used the program so I don't know exactly how it works, but apparently if you try to screen capture it sends a message back to the sender that you attempted to save the image. On the flip side, someone could always pull out a camera and take a real photo of their iPhone screen. Can't stop that....

CompBanker

 
Jul 31, 2017 - 1:41pm

CompBanker:

The people that I know who use snapchat pretty much use it exclusively to send nude photos of themselves. I've never used the program so I don't know exactly how it works, but apparently if you try to screen capture it sends a message back to the sender that you attempted to save the image. On the flip side, someone could always pull out a camera and take a real photo of their iPhone screen. Can't stop that....

But you'd look pretty stupid sitting there waiting for the picture to come through on SnapChat (I think it deletes it after 20-30 sec?) and holding your camera, chucking maniacly to yourself like an evil Luigi.

 
Jul 31, 2017 - 1:42pm

CompBanker:

The people that I know who use snapchat pretty much use it exclusively to send nude photos of themselves. I've never used the program so I don't know exactly how it works, but apparently if you try to screen capture it sends a message back to the sender that you attempted to save the image. On the flip side, someone could always pull out a camera and take a real photo of their iPhone screen. Can't stop that....

It used to be that it just notified the person if the receiver took a screenshot, now SnapChat is coded so that it won't let you.

There's a way to dig into your phones harddrive and get the pictures though.

 
Jul 31, 2017 - 1:43pm

DaisukiDaYo:

CompBanker:

The people that I know who use snapchat pretty much use it exclusively to send nude photos of themselves. I've never used the program so I don't know exactly how it works, but apparently if you try to screen capture it sends a message back to the sender that you attempted to save the image. On the flip side, someone could always pull out a camera and take a real photo of their iPhone screen. Can't stop that....

But you'd look pretty stupid sitting there waiting for the picture to come through on SnapChat (I think it deletes it after 20-30 sec?) and holding your camera, chucking maniacly to yourself like an evil Luigi.

The picture can stay in your inbox forever if you do not view it. The sender can chose how long you can view it for. You can view it multiple times but only for the allotted amount of time.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Jul 31, 2017 - 1:47pm

AndyLouis:

CompBanker:

The people that I know who use snapchat pretty much use it exclusively to send nude photos of themselves. .

you left that a little too ambiguous, so are you on the receiving end of these chick's photos? or just know some creepy guys?

Use your imagination.

CompBanker

 
Jul 31, 2017 - 1:51pm

krauser:

Stuff like this makes me think that making the "next hot internet product" is a total crapshoot.

The next big internet company or app is less about what it actually does and more about how it looks and how it spreads. You can make the most useful app/website in the world but if its hard to use, looks dated, and has no marketing it will fail.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Jul 31, 2017 - 1:52pm

heister:

Wow, Wall street has now caught up to a bunch of 13 year old girls. Congrats.

Do you mean to tell me the trusted financial advisors of our largest corporations are nothing more than children sending around pics of their junk in a passive aggressive attempt to lose their virginity?!

 
Jul 31, 2017 - 1:54pm

adapt or die:

heister:

Wow, Wall street has now caught up to a bunch of 13 year old girls. Congrats.

Do you mean to tell me the trusted financial advisors of our largest corporations are nothing more than children sending around pics of their junk in a passive aggressive attempt to lose their virginity?!

Pretty much.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Jul 31, 2017 - 1:58pm

TheKing:

Anyone else suspect that this could be an insane insider trading tool?

I think Eddie has a point.

Edmundo Braverman:

Pretty cool that Kevin quotes Patrick, but SnapChat is like walking into a buzzsaw. Mark my words: that shit will come back to haunt you. THE INTERNET IS FOREVER!

Competition is a sin. -John D. Rockefeller
 
Jul 31, 2017 - 2:00pm

Snapchat Turns Down $3B Offer from FB (Originally Posted: 11/13/2013)

From WSJ:

Snapchat, a rapidly growing messaging service, recently spurned an all-cash acquisition offer from FacebookFB +4.52% for $3 billion or more, according to people briefed on the matter.

The offer, and rebuff, came as Snapchat is being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent HoldingsTCEHY -1.33% had offered to lead an investment that would value two-year-old Snapchat at $4 billion.

Evan Spiegel, Snapchat's 23-year-old co-founder and CEO, will not likely consider an acquisition or an investment at least until early next year, the people briefed on the matter said. They said Spiegel is hoping Snapchat's numbers – of users and messages – will grow enough by then to justify an even larger valuation, the people said.

Thoughts? Many seem to think he's made a huge mistake.

http://blogs.wsj.com/digits/2013/11/13/snapchat-spurned-3-billion-acqui…

 
Jul 31, 2017 - 2:09pm

For some reason I don't see FB backing down after the first no. Should a Chinese buyer offer 4bn+ Snapchat can easily use that as leverage to renegotiate another offer from FB. Given the userbase (and the fact that an overseas buyer is offering 4bn), I'd say they're probably doing very well to bide their time and wait for a bigger offer.

Currently: future psychiatrist (med school =P) Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
Jul 31, 2017 - 2:32pm

ke18sb:

Downside is you lose everything. Upside is you are more of a billionaire.

End of the day your are a billionaire. Pretty sure I'd slept at night with 500mm vs. 1.5bn. Not sure much if I went from 500mm to 0.

Hit the bid.

This.

I'm interested to find out what kind of drain bamage these guys must have for not selling their 'company' (that does no business) for 3 BILLION DOLLARS.

 
Jul 31, 2017 - 2:18pm

I've never used Snapchat and I know very little about it. Does it serve any real purpose other than sexting/sending nudes to people that disappear? Maybe I'm missing something here but what makes this thing so valuable?

I'd love someone to explain this to me because I've been out of college for awhile now and I don't get this thing at all.

 
Jul 31, 2017 - 2:19pm

you've got the main idea. which is why it's ridiculous that it's being valued this highly.

I think zuckerberg is a terrible CEO for FB at this level. He seems stuck on the VC mentality when you look at his acquisitions. He's focused more on userbase numbers than actually properly monetizing shit [literal shit i.e. instagram: i still don't understand how you can successfully monetize that start-up unless you start mining information and resell it to companies (and i don't know if the profits from that can support something like snapchat or instagram); if you start showing ads, people will leave in an instant].

Now that FB is a public company, he should be focused on generating FCFF, not buying assets just so you can boost your userbase.

I don't think FB can offer much to snapchat in terms of monetizing their product/synergies. Zuckerberg has enough trouble with FB and instagram, and I have a strong feeling FB is losing users on a regular basis.

 
Jul 31, 2017 - 2:22pm

1. Any CEO that is offering $4B for SnapChat is telling stockholders that he couldn't give less of a shit about them.
2. Snapchat's founder would probably be more than happy to cash out at $3B, but his VC's (especially the guys who joined later in the game) are pushing for a higher return on their investments.
3. Do they have even a dollar of revenue?
4. Is it 1999?

"The past is never dead. It's not even past." - William Faulkner

 
Jul 31, 2017 - 2:28pm

After the Twitter IPO, some folks seemed shocked that a company with no earnings is at 23 bn...who would have thought that we'll follow that up with a company with no revenue being at 3 bn. Apparently Pinterest also has no revenue and was valued at 4 bn last month.

Good stuff. I'm going to see if I can get my hands on some tulips.

 
Jul 31, 2017 - 2:29pm

Seems like the majority of people on here don't use/understand snapchat. Snapchat is not a sexting app.

Within the teen/college and even post college demographic - its a primary source of texting. The point of snapchat is that people do not want a digital footprint of everything they do in life. FB and instagram externalize everything.

Snapchat mirrors real life in that what is said is only there for an instant. This will be the direction that users want in the future and snapchat has the platform and user base - they have achieved the network effect.

Revenues will be harder to monetize but they have a lot of options going forward, movie previews, funny videos from brands etc.

I don't know what its worth, especially in these crazy times, but dismissing the company is foolish.

 
Jul 31, 2017 - 2:31pm

Seems a little too optimistic IMO. There's plenty of snapchat modifying programs in app stores that let you insta-save everything sent to you. Hell, you even have plenty of time to screenshot whatever you're sent if it's ~5 seconds or so.

I don't think this will be the main form of texting in the future, just because people have shitty memory. If someone replies to you 4 hours later, with no history, I feel like there's going to be a lot of 'what were we talking about?' going around.

I can't imagine this being someone's main SMS application.

 
Jul 31, 2017 - 2:34pm

ke18sb:

Seems like the majority of people on here don't use/understand snapchat. Snapchat is not a sexting app.

Within the teen/college and even post college demographic - its a primary source of texting. The point of snapchat is that people do not want a digital footprint of everything they do in life. FB and instagram externalize everything.

Snapchat mirrors real life in that what is said is only there for an instant. This will be the direction that users want in the future and snapchat has the platform and user base - they have achieved the network effect.

Revenues will be harder to monetize but they have a lot of options going forward, movie previews, funny videos from brands etc.

I don't know what its worth, especially in these crazy times, but dismissing the company is foolish.

What percentage of SnapChat's users do you think use it for that reason?
Also, I like having a record of my digital conversations. I can look back when sober and figure out what happened.
In these crazy times, when a chick sends you pics through conventional text, it's a true sign of trust.

 
Jul 31, 2017 - 2:54pm

ke18sb:

Seems like the majority of people on here don't use/understand snapchat. Snapchat is not a sexting app.

Within the teen/college and even post college demographic - its a primary source of texting. The point of snapchat is that people do not want a digital footprint of everything they do in life. FB and instagram externalize everything.

Snapchat mirrors real life in that what is said is only there for an instant. This will be the direction that users want in the future and snapchat has the platform and user base - they have achieved the network effect.

Revenues will be harder to monetize but they have a lot of options going forward, movie previews, funny videos from brands etc.

I don't know what its worth, especially in these crazy times, but dismissing the company is foolish.

The problem is that the whole concept is easily imitable. Timers could be an option on every single stock and third-party texting app in no time. Intellectual property situations are so muddy anyway, there are lots of technicalities that could 'diferentiate' a similar product even though it will effectively do the same thing.

Also, as we have learned, the digital footprint isn't entirely erased. It is still accessible by SnapChat, even if it's not there for your friends/girlfriend/mom to see.

 
Jul 31, 2017 - 2:35pm

I've read articles based on surveys that like 90%+ of snapchats aren't sexts and 80% of users don't even sext with the app. 350mm snaps are sent daily (same as number of facebook photo uploads) - if that isn't a threat I don't know what is.

I'm not sure how they will make money but seriously some of these responses just show how fast technology changes and how out of touch people are as they age and become busy.

This is a good article/interview with Benchmarks team talking about snapchat.

http://techcrunch.com/2013/10/28/why-ephemeral-tech-is-here-to-stay/

 
Jul 31, 2017 - 2:36pm

Ah. I knew your sentiment/reasoning sounded familiar; saw that TC article previously.

I agree that this will play a niche role for the foreseeable future, but I still don't believe that this is going to be the main form of communication going forward. Also not very confident that Snapchat will be the company to achieve profitability in this space.

In addition, I believe that number (350MM) is probably quite overinflated, judging by the fact that people often mass spam their pictures to multiple people (and each of those messages will be counted multiple times, since they're technically separate 'snaps' according to the wording in that article?).

 
Jul 31, 2017 - 2:37pm

Not sure about you folks, but I am a big user of instagram and know a ton of people who are the same. I follow diddy, the game, some chefs, travel companies, travel magizines for example and they all use instagram as a way to promote their shit. Have some friends who follow amateur models on instagram who become celebs like youtube made people celebs when it first started out.

There is lots of ways to monetize instagram it will just take time, just like the first time companies and ads showed up on youtube.

Snapchat on the other hand....Zuck may be getting ahead of himself unless he see's some use we don't which could be possible...In its current form, very tough to monetize.

 
Jul 31, 2017 - 2:39pm

the thing is, youtube celebrities only became celebrities because they would increase ad views for youtube.

can you imagine people watching advertising just so they can scroll through pictures of attention whores in bikinis?

i can see something like what twitter did with 'promoted tweets,' but i wonder if how much advertisers would pay/how they would pay.

'per view?' - not likely since it's a photostream
'per like?' - i think once again not likely, because people will just scroll through, not a good measure.

iunno, i thought about what you said as well (i'm a pretty big tech head), but I can't imagine people paying that much for instagram advertising/promoted accounts because you can't 'verify' your RoI, not like you can embed hyperlinks into it or have a realistic RoI system other than whether people go into your specific photo page, which is an ambiguous link to RoI at the very least.

i think twitter/social media in general has/will continue to have a lot of trouble properly monetizing (both now and for the foreseeable future), and i wonder how steep of a learning curve it'll be for them to get this right.

i think tumblr had the right idea when their CEO (pre-yahoo acquisition) mentioned in an interview that they want to focus on integrated advertising, advertising that flows into the whole experience. obviously, they haven't gotten it right yet, but i think this is the one thing that'll make a phenomenal social media company.

 
Jul 31, 2017 - 2:38pm

He should have taken it but I can see why he wouldn't. He expects more from Tencent, and maybe expects a bidding war between them and Facebook. I can see Zuck becoming aggressive and doing whatever it takes to acquisition them. I also think that if he balks at anything 4 billion or above, he's an idiot. If he gets more than 4 billion it will be luck. I finally got roped into snapchat by a few female friends (guess they didn't really have to twist my arm), and it's fun. But not necessary to my everyday social media experience. However, for many, it is. Facebook wants that user base, and I have a feeling that it would take a lot to stop them from getting it.

Still kicking myself for not coming up with this myself.

"When you stop striving for perfection, you might as well be dead."
 
Jul 31, 2017 - 2:40pm

To be clear, I'd hit the bid. That said to some degree you gotta (or at least I do) assume that these guys (VCs/FB) who have devoted their entire lives to this sector have a decent grasp of whats going on - while us WSO finance guys think we know it all when we probably really have no clue (myself included).

 
Jul 31, 2017 - 2:41pm

ke18sb:

To be clear, I'd hit the bid. That said to some degree you gotta (or at least I do) assume that these guys (VCs/FB) who have devoted their entire lives to this sector have a decent grasp of whats going on - while us WSO finance guys think we know it all when we probably really have no clue (myself included).

I mean, that's what they were saying in 1999. "The VCs must know better. They're VCs!"

I think SnapChat has a decent product. I think that 350M users is a lot. And the ephemerality of the experience makes them inherently different than a lot of other social media companies. I've been following them since they launched, read the TechCrunch articles, etc. It's all well and good.

But they have no revenue. To value them at $4B is completely insane. And I say this as a tech banker, as someone who's into technology, who wants Silicon Valley to succeed. Like, it's nuts.

The media bashed the Facebook IPO/valuation at the time, but Mark had made a hugely profitable, entrenched social media behemoth that has obscene amounts of data that is only slowly being monetized. Those guys are pioneering targeted advertising, and it's still being fine-tuned, but the groundwork was well in place even in '10, if you were following the company closely. They've created a walled garden with tons of content/users that you can only access through them. That's insanely valuable.

And Twitter is a little different in that it's primarily a mobile product and has a lot less data on its users than Facebook does, which makes its advertising less valuable. But its pervasive across all different types of media and they've been experimenting with different ways to integrate it with live television. The user base is incredibly active...I mean, the valuation is rich, as I've posted elsewhere on this site. But they're an actual company with actual revenue.

SnapChat, though...I mean, the whole point of the app is that it's a privateunreadable after they've been viewed. Which is great for teenagers. But these core product features make it incredibly difficult to monetize. Like, the actual images and videos are gone after they've been posted, unlike with Instagram. So there's literally not content. There's no feed to post advertising to, except for all those dead message. And advertisers don't actually know anything about the users! You just enter a screen-name. Hypothetically, I guess, SnpaChat could create "sponsored message," where Proctor and Gamble spam you with some 10 second clip of Tide laundry detergent. But that will ruin the product. No one wants that shit. It's annoying. So the advertising needs to be more subtle. And I guess SnapChat could start analyzing the images its users send, somehow, but there's no evidence they're capable of that type of technological innovation. (Side note: Facebook cloned SnapChat in literally 2 weeks. It's called Facebook Poke, now defunct. I think it was actually a superior product. SnapChat's success is certainly not due to the sophistication of its engineers...)

Now, the VC backers are smart, or at least opportunisitic, but I think the exit they're hoping for is one like Facebook is offering: a strategic acquirer drowning in cash picks them up to grab the user base without a whole lot of thought for price or future monetization.

 
Jul 31, 2017 - 2:44pm

You all realize that there are like a billion snap chats sent a week right? The money comes easy, charge users a dollar or two a year to use the app. Boom you have a billion dollars a year in revenues. Not hard to do. No one will even think twice about paying a dollar or two a year to use the app.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Jul 31, 2017 - 2:46pm

heister:

You all realize that there are like a billion snap chats sent a week right? The money comes easy, charge users a dollar or two a year to use the app. Boom you have a billion dollars a year in revenues. Not hard to do. No one will even think twice about paying a dollar or two a year to use the app.

Charging for a texting platform is the fastest way to kill it. If they did that, they would lose their user base in days. That's like the people who are proponents of charging for things like FB. People would just move on to the next top free application.

 
Jul 31, 2017 - 2:49pm

heister:

You all realize that there are like a billion snap chats sent a week right? The money comes easy, charge users a dollar or two a year to use the app. Boom you have a billion dollars a year in revenues. Not hard to do. No one will even think twice about paying a dollar or two a year to use the app.


Just because there are a billion snapchats sent a week doesn't correlate to a billion users. It's one thing to charge per user and another thing to charge per snap.

I do like the freemium model @Going Concern proposed though. A ton of apps that seem like non-revenue-generating get by quite well on that. Maybe not $3bn of "quite well", but enough to be profitable.

Currently: future psychiatrist (med school =P) Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
Jul 31, 2017 - 2:51pm

Love all the comments - we all act like we'd know what it's like having a ~$3B company and the right path to cash out/stay in, when in reality we don't know wtf we're talking about.

It's like talking about elite four strategy when you're still trying to beat brock - doesn't work, and you sound stupid when you use Machamp against Agatha's Gengar.

Tech bubbles ftw

speed boost blaze
 
Jul 31, 2017 - 2:55pm

Magneton:

Love all the comments - we all act like we'd know what it's like having a ~$3B company and the right path to cash out/stay in, when in reality we don't know wtf we're talking about.

It's like talking about elite four strategy when you're still trying to beat brock - doesn't work, and you sound stupid when you use Machamp against Agatha's Gengar.

Tech bubbles ftw

This niche of yours to throw out Pokemon-related analogies (that rarely, you know... make any sense...) is so weird. I can't believe people don't call you out more.

Lots of us here probably played Pokemon but I just don't get what you're doing. Especially considering your comments RIGHT BEFORE the Pokemon stuff are usually acceptable and sometimes insightful.

 
Jul 31, 2017 - 2:52pm

Isn't that part of the enjoyment of WSO, though? Isn't that the reason we speculate on the markets? No one is going to know exactly what's going on in FB's minds, or what features/monetization schemes Snapchat might have up its sleeves. But it's fun to speculate and discuss.

Currently: future psychiatrist (med school =P) Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
Jul 31, 2017 - 2:58pm

Isn't in these apps best interests to not even attempt to monetize before being bought out? If they have a revenue stream then its a lot easier to come up with an appropriate valuation for them. If they don't and haven't even attempted to monetize then it leads to these inflated valuations based on the perception of some future incredible source of revenue

 
Jul 31, 2017 - 3:01pm

cooldurg:

Isn't in these apps best interests to not even attempt to monetize before being bought out? If they have a revenue stream then its a lot easier to come up with an appropriate valuation for them. If they don't and haven't even attempted to monetize then it leads to these inflated valuations based on the perception of some future incredible source of revenue

There's a lot of truth in this.

 
Jul 31, 2017 - 3:00pm

In terms of paid texing apps, I believe WhatsApp charges $1 per user per year, and it apparently has 350m users. So, that's $350m in revenue each year, pretty insane. Plus, they've got things you can buy within the app that boost their cash flow.

More than anything, I feel like an app like Whatsapp could just add a snapchat-esque feature.

That said, I use Snapchat and think it's fun. No clue how it's worth that kind of money, but it's a fun app to screw around with.

On some level, I imagine that a lot of the crazy valuation comes from old folks trying to figure out what's cool with teenagers and assuming they'll be able to do something with it down the road. But, who the hell knows.

 
Jul 31, 2017 - 3:09pm

Just my 2 cents.

The Chinese will be willing to offer even more. Yes a lot of people who have used snapchat don't use it any more. But there are billions at the other end of the world who absolutely have no idea about snapchat. If Tencent brings this to China, they are gonna make much more billions of $ if they are able to combine this well with their WeChat.

 
Jul 31, 2017 - 3:10pm

inklinz:

Just my 2 cents.

The Chinese will be willing to offer even more. Yes a lot of people who have used snapchat don't use it any more. But there are billions at the other end of the world who absolutely have no idea about snapchat. If Tencent brings this to China, they are gonna make much more billions of $ if they are able to combine this well with their WeChat.

But why not just build a SnapChat knock-off for

 
Jul 31, 2017 - 3:21pm

Edmundo Braverman:

Get this: Google offered him $4 billion, and he told them to get fucked:

http://www.androidauthority.com/google-snapchat-ac...

I really hope this blows up in the kid's face and he ends up flipping burgers.

I think folks aren't looking closely enough at the other side of this. Sure, it's easy to say he's a bit dim to turn down 4 bn cash (and to some extent true), but that's obviously not the whole story. The fact is that folks like Facebook want, dare I say need, to show user growth. This Spiegel guy has made an app that lets him have his finger on like 30mn+ users. Facebook and others desperately want something that he has, and he recognizes that. He couldn't (and doesn't need to) care less whether the app makes a penny in revenue. Pretty much all business is an exchange transaction between two parties who want something from each other, in this case cash for users. So if you want to criticize something, I think the right thing to criticize wouldn't be Spiegel individually in isolation but the absurdity of the entire situation.

Just on a company value per user basis (because that's the entire worth of the app), how much is a user worth? I would hope I'm worth more than 20 bucks but maybe that's being too generous.

That being said, he is playing a bit hard-to-get...bishes be cray, dawg.

EDIT: updated number of users

 
Jul 31, 2017 - 3:18pm

wait, are you serious? this is terrible. the entire premise of this article is exactly what multiple people including me have said in this thread, that instagram can't be monetized efficiently because having advertising/most monetization methods will detract from user experience and they'll lose userbase.

instagram isn't a nonprofit. it's supposed to be a business (albiet early stage), but their end goal is to make a profit for their shareholders. now the VC investors/founders of instagram made a huge profit on the FB acquisition, but, like instagram, FB's goal is supposed to be maximizing shareholders returns. this is a terrible acquisition because it won't be leading to an increase in value (which in the end always comes down to the PV of expected future FCFF); it'll actually probably be a net decrease to FCFF because you're not getting comped for your operating expenses at this moment.

instagram might be great for allowing people to be 'artistic' and 'unique,' but if it's not being a net benefit to FB's returns to shareholders (including future profitability prossibilities) it's deadweight from a business point of view.

ps, canvaspop is also a whack company (and the fact that zynga owns it also doesn't give it any points in my book). a startup printing service? i wonder how much revenue instagram will be bringing in by partnering with them.

 
Jul 31, 2017 - 3:16pm
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