Snapchat Snapshot

Snapchat — or as some call it that “disappearing picture thing” with the messaging and other stuff — is getting ready to pull the trigger on an IPO (initial public offering) which will allow Snapchat to make something else disappear — your money.

snapchat-logo-2D9C3E7ADA-seeklogo.com

This is Ghostface Chillah who is a relative of Ghostface Killah of the WuTang Clan. Not too many people know this. Now, you do. Snapchat was first called Picaboo. Did you know that?

OK, so that is not a charitable description of what is really going on. So, let’s just chalk that up as a feeble attempt at humor, knowing, as you do, that the Big Red Car is in favor of all kinds of opportunities for y’all to own a slice of technology and social media and cool stuff.

BTW, it is a lovely day in the ATX with 85F expected this afternoon calling for some 50 SPF for the face, with particular emphasis on the nose. But, then, it is winter in Austin, so what can you expect?

In taking a look at interesting investment opportunities, it is essential to run down the who, what, when, why, how much of it all.

Snapchat – Who

Snapbook (haha, Snapchat, silly goose) is run by the founders, Evan Spiegel and Bobby Murphy. There is a sordid little tale wherein a chap named Reggie Brown (Stanford students all) was involved in some capacity by which he claimed to have earned an equity interest in what had been called Picaboo before becoming Snapchat. Some say it was actually Brown’s idea brought to Spiegel which got the entire thing started in the first place. The Big Red Car takes no sides in such beefs.

In any event, daggers were drawn, lawyers were engaged, letters were sent, but it was all beaten back into plowshares and a settlement was arrived at leaving Spiegel and Murphy in control of your disappearing messages and pictures.

If this thing works, Messrs. Spiegel and Murphy will be newly minted billionaires. Neither has, as of today, indicated any interest in running for President, but, it’s still early. [Technically, they are both too young to qualify.]

Snapchat – What

Evan Spiegel always saw the mission as something like, “Snapchat isn’t abut capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion — not what appears to be pretty or perfect.” Sigh. Yes, I know — WTF does that mean?

Others suggest Snapchat is really intended to broadcast your embarrassing moments into a world which wipes them clean and thereby reduces the anxiety that a job interviewer might include that one time you had too much to drink and took your shirt off. Some call these “candid photos” but the Big Red Car is not here to judge.

Snapchat – When

The IPO is coming down the pike ……………………………………. right now.

There is a ton of info available and if you were an investment professional, you would want to read a pack of carefully written utterances called an S-1. Dreary and dreadful reading as it says the future could be great, but it could also be not so great.

What is interesting is some of the raw data on such things as revenue, the control features of the actual stock class being issued, the company’s view of who their competitors might be, and the compensation of its management.

Snapchat – Why

OK, here we will dig into a few of the numbers.

First, the company has almost 160,000,000 daily users which is a lot of people. Those are numbers reported as of 31 December 2016, before the ball came down in Times Square.

There is a lot of conjecture as to growth rates with seven percent between Q2-2016 to Q3-2016 being bandied about and the word “flat” being tacked onto Q4-2016 growth discussions. That doesn’t strike the Big Red Car as spectacular growth, you?

The company claims its active users visit up to eighteen times per day and spend about thirty minutes a day on the app. This is “active users”which feels to the Big Red Car like a cherry picked stat? Don’t really know.

The company also reports a total of 2,500,000,000 “snaps” daily with a total of 10,000,000,000 “views.” Huge numbers, but observers might warn that young, trendy following users are notoriously fickle and don’t know the meaning of the word “loyalty.” Still, those are huge numbers.

Second, the company had gross revenue of $58,700,000 in 2015 and $404,500,000 in  2016. Yes, that is an enormous rate of growth. Wow!

Unfortunately, the bottom line was a net loss of $372,900,000 in 2015 which grew to a net loss of $514,600,000 in 2016.

Both revenue and expense growth is quite robust. Still, no profits. When expenses exceed revenues, profits are killed in the process.

Third, Snapchat is an advertising company with almost all of its revenue coming from advertising. To be fair, there is a bit of user created content, Snapchat Specs, and Snapcash, but they are not meaningful contributors to revenue.

Fourth, the class of stock being sold is Class B Common, which co-exists amongst Class A Common (no voting rights whatsoever) and Class C Common which is owned by Evan Spiegel and Bobby Murphy and which receives ten votes per share.

To summarize:

Class A — no voting rights whatsoever
Class B — this is the IPO stock, one vote per share
Class C — the stock owned by the founders, ten votes per share << The founders control everything that is ever submitted to the shareholders for a vote, like electing the Board of Directors. Know this because one of the founders is 26 and the other one is 28. Nothing wrong with that, but know what you’re buying into.

What do you conclude, grasshopper? You have this one.

Fifth, this is a company which sees amongst its competitors some very dicey companies including Apple, Google, and Twitter. [OK, I know Twitter has been a little hard to understand, but they do have a President Trump who has been working overtime to boost their fortunes.]

If I have read it all correctly, they did not list Facebook as a potential competitor, which strikes the Big Red Car as a grievous error as FB owns Instagram and if Insta rolls over in bed, they can duplicate Snapchat in a second. There is already a recent feature that Instagram introduced that some say is a shot across the bow of Snapchat.

Small point — About 18 months ago, Mark Zuckerberg offered Evan Spiegel $3,000,000,000 for his fledgling Snapchat. Folks, remembering Groupon perhaps, thought it a bit cheeky of Spiegel to brush Zuck off. Now, if the Snapchat IPO makes it through the gate, it makes Spiegel look like a guy with a real nose for value. This may inspire FB to teach Snapchat a lesson. It may get personal. Who knows?

FB, Zuck, et al, bought Instagram for $1,000,000,000 and FB has a lot of money to throw at anything that vexes it. Recall that FB bought Instagram on the eve of FB’s IPO and many see it as an effort by Zuck to keep the turd from surfacing in the punchbowl. A lot of smart people think Zuck was pretty damn shrewd. Big Red Car does. All an interesting consideration.

I personally, the Big Red Car, worry about what happens when one conjures up the wrath of companies like Apple and Google who have gobs of money, an established base, and no sense of humor. This may be the Achilles heel of the deal, though many are reluctant to read this afar into the S-1.

Sixth, where does it go from here, Big Red Car. This is where the Big Red Car begins to mumble about Facegram. Ooops, I mean Instabook. No, I mean Facebook and another control freak who has turned a very nice trick as measured by:

FB came out in its deb dress in 2012 and curtsied at $25/share and recent pricing shows it at $134/share. Do the math, but in a five year period, you are probably doing your happy dance, no? Good on you, mate.

Snapchat – How much

So, in looking at the pricing, Snapchat seems to be indicating a value of $25,000,000,000 for the entire enterprise which compares with a value of $17,800,000,000 penciled in at their last fundraise. A lot of folks are holding their breath.

An IPO typically only sells a portion of the company and in this instance, it is projected the company will only raise about $3,000,000,000 in new funds. The actual demand for the stock will determine the final outcome.

So, dear reader, there you have it. An exciting IPO for a company making no profit, controlled by a couple of twenty-somethings who don’t intend to give up control, and who see themselves in the trenches fighting the likes of Apple, Google, Twitter, and Facebook (the Big Red Car’s contribution). Should you buy some?

Bottom line it, Big Red Car

Alas, dear beloved reader, the Big Red Car does not do IPO recommendations. Facts, yes. Recommendations, no. Sorry.

But there are enough facts for y’all to make a damn good decision. For you. [Note, the Big Red Car has no other sources than public sources, suffers from average reading comprehension, was once a numbers wizard third class, and sometimes can get a little lazy. Beware.]

But, hey, what the Hell do I really know anyway? I’m not an investment analyst, I’m a freakin’ Big Red Car. Be good to yourself and, please, do not spend the rent money on this deal. Be good to yourself because you’re earned it.cropped-LTFD-illust_300.png

 

 

 

 

 

  • Tim Bates

    Social media currently for Gen Z seems a fashion buy, today Abercrombie tomorrow ? FB did a great job of monetization and has kept ahead of the pack by driving revenue and creating Psychographic data. (a key value) Snap and twitter fall short. I don’t see Dorsey and DJT saving TWTR nor do I see how non-persistent content is going to have a long tail! More of an Atoms over Bits guy lately!

  • Andrew Cashion

    The spectacles for speculation….? A new word-phrase came to mind with this, “Wall Street Pro-Fucking.”

    It’s been a while for those assholes, plus the lefty hippies and their “Augmented Reality” are limited IMO by Spiegel’s capability to create teams to build out and grow AR technology against the likes of Google, Apple, Amazon, fuck it maybe even Ebay? just kidding. But yeah Pro-Fucking via Wall Street time.

  • kws78

    Correction: Offering is Class A stock, zero votes per share. Opening sentence of the cover: “This is an initial public offering of shares of non-voting Class A common stock of Snap Inc.”

  • Proud parent of 4 high schoolers – my two boys in 10th and 12th grade are part of the group that use it 18 times a day (they are still on honor roll and play multiple sports) – – but I don’t quite get it. They use NOTHING else . . no facebook, no instagram, not twitter .. just snapchat. Seems to mostly be shots of weird stuff or random selfies – they keep track of how many consecutive days that they shapchat with their friends . . gotta keep that streak going because ?????
    I did find this site that helped me understand how it is used
    http://www.digitalparenting.ie/snapchat.html
    It seemed to be in synch with what my boys were telling me.
    I’m betting it’s a fad . .something new will replace it – I remember that weird Chatroulette that was supposed to be big – but it was really just for pervs.

  • sigmaalgebra

    One could talk themselves into optimism on Snapchat with a network effects, virality argument:

    (1) Joe and Susan are talking in the hall before the first class, and Joe asks Susan for a picture of her. Susan says that she will send one via Snapchat and asks Joe for his user ID. Joe does not yet have a user ID, so Susan concludes that Joe is not cool, and Joe missed out on the picture.

    (2) With that failure, Joe learns his lesson and becomes a Snapchat user.

    (3) Joe and Mary talk at lunch, and Joe asks Mary to send him a picture on Snapchat and gives Mary his Snapchat ID. Mary agrees. But to send the picture, Mary has to become a Snapchat user and does.

    So, from one Snapchat user Susan, both Joe and Mary become Snapchat users.

    (4) Mary sees a cute, hungry kitten at the backdoor, adopts it, and sends a picture to everyone she knows on Snapchat. So, Mary sees that by encouraging others to have Snapchat IDs, she can have more people to send pictures of kittens or whatever so encourages everyone she knows at school to get a Snapchat ID and give it to her.

    With such scenarios, one could guess that Snapchat will grow due to network effects, virality.

    But, maybe Zuck wants the Snapchat users so offers a similar service, Peek-Z. Here is a surprise: Since Susan, Joe, and Mary and all of Mary’s friends on Snapchat are already on Facebook, Zuck’s new service Peek-Z gets instant network effects, virality.

    (5) Tom also wants a picture of Susan (she is popular) and asks Susan. She asks for Tom’s Snapchat user ID, but Tom says he has no Snapchat user ID but gives Susan his Facebook user ID and asks if Susan can send via Facebook’s Peek-Z, confident that Susan also has a Facebook user ID, which she does. So, Susan checks out Peek-Z and then takes her smartphone into Daddy’s bathroom, stands before the mirror, and sends Tom a picture via Snap-Z she believes Tom will like and looks forward to a date from Tom. Thus Susan cuts off some of the Snapchat ad revenue, gets more ad revenue for Zuck, and from her date, soon, with Tom gets more revenue for a romantic Italian restaurant and has a romantic walk on the beach.

    • JLM

      .
      I wonder how that scenario is different than for Instagram?

      I think the difference is the survivability of the pics.

      I don’t do enough drunk Instas to really know what I’m talking about.

      BRC
      http://www.themusingsofthebigredcar.com

  • sigmaalgebra

    To be clear,

    Definition: The set of active users is all users who visit up to eighteen times per day and spend about thirty minutes a day on the app.

    Theorem: The active users visit up to eighteen times per day and spend about thirty minutes a day on the app.

    Proof: Immediate from the definition. QED.

    Remark: We put that result on our bookshelf of other mathematical classics such as A Short Table of Even Primes.

  • SFG

    If zuck were to offer me 3B’s, I’d take it and run! It’s difficult for me to comprehend 25B’s for snapchat. They are like a fly that could be swatted at anytime.

    • JLM

      .
      I hear you.

      If this works out for Spiegel, he will go down as a gutsy arbiter of value. Not many people have turned down billions to make even more billions. We are way beyond — “what should I have for breakfast” considerations.

      I have a feeling that the Snapchat IPO is not quite baked.

      BRC
      http://www.themusingsofthebigredcar.com

  • One of the biggest misconceptions these days is that Gen Z isn’t interested in Facebook. Here’s a screenshot from a report I read just yesterday. Snapchat future growth potential is huge with Gen Z, but so is the growth potential of both Facebook and Instagram with this demographic.

    https://uploads.disquscdn.com/images/1f49ea0ff7742f3eb0ef6546c7a2f05a667706feaf98d1ba9ac1d6efd47d8d28.png

    • JLM

      .
      One of the problems with Gen Z is that they have been born into tech savvy. Not one day of their lives was the Internet not there for them and, thus, when one ponders why they will switch from one social media hook to another, it is difficult to see what about Snapchat is going to be “unique.”

      In much the same way that FB bought Instagram just prior to their IPO (IPO insurance in many peoples’ minds), FB can also roll out direct competition to Snapchat, but with — as you have demonstrated — a bigger pool of customers.

      Gen Z is getting to their daily limit of social media and it doesn’t resonate with me they are going to throw something overboard to hop in with Instagram.

      Gen Z is notoriously disloyal.

      BRC
      http://www.themusingsofthebigredcar.com

  • JLM

    .
    Snapchat is offering y’all a once in a lifetime opportunity to own some of its Class B Common.

    Whoa, Class B Common?

    http://themusingsofthebigredcar.com/snapchat-snapshot/

    Read about it.

    BRC
    http://www.themusingsofthebigredcar.com