I'm happy for the NYSE that this went well. SNAP has done some pretty large volume so far with no problems.
Interestingly enough, well atleast to someone who cares about the cash equity markets, the NYSE actually did a test run last week to try and simulate the chaos that occurs during any hot IPO.
So now we know that there is atleast some appetite for shares with no controlling interest and no indication of paying out a dividend any time soon. A current market cap of 30 Billion is a pretty darn big accomplishment!
Two big dates in the future to look out for.......
1) July 30 when the first lockup date is over. I'm not sure how many shares come off restriction.
2) May 15 when they do their first earnings report.
I'm interested to see if they try and make people view the company via GAAP accounting(PnL) or non GAAP measures like engagement, monthly users, etc.
They had a pretty large participating contribution (50M shares as I recall) so that is a bunch of money that paid off some folks who might have been skittish.
I was surprised to see as large a bounce as there was. And it has no doubt realigned the world view of a bunch of Snapchat employees[1].
To your last point I can't imagine they are going to talk earnings in a GAAP context unless they are generating lots of free cash flow as Google does.
[1] If you're an employee and reading this and thinking "I'm rich! Quick go buy a Lamborghini!" I caution you to wait until you've not only exercised the shares and paid tax on them, but you have sold the shares and that sale has 'settled' and you have the money in your brokerage account.
Yup, solid advice re: waiting. Generally, I've heard it as "don't do anything drastic with the money for a year". That gives enough time to let the emotions cool down.
And you owe taxes on it, regardless. I heard some sob stories from the brokers at Charles Schwab after Enron went under - energy traders who had borrowed heavily (on margin) against positions that were now worthless. Oy.
Some of the worst horror stories are from people that exercised their options and then waited a year to sell the stock to qualify for long term capital gains. Then the stock subsequently crashed so they owed a massive AMT tax for the difference between strike price and price on exercise and got almost nothing from the actual stock sale.
You are talking past hueving. The huge AMT tax bill could literally follow you around the rest of your life. It is a much higher order problem than blowing money on a car. The last several years I have had 7-figure tax bills due to AMT calculations on options. Good problem, right? Maybe, maybe not. If I had exercised and held, I would be bankrupt. Instead I exercised, sold enough to pay taxes right then, and didn't get hosed when the stock dropped steadily just before every open trading window. I also didn't buy a Lamborghini, but that's beside the point.
A consumption tax solves it. Someone buys a Lamborghini, they pay tax on it. They save the money, they pay nothing. But taxation is power, government can play favorites by using tax laws to reward contributors.
> They had a pretty large participating contribution (50M shares as I recall) so that is a bunch of money that paid off some folks who might have been skittish.
Could you explain what this means a little more? What is a participating contribution in this context? Are these shares employees were able to sell in the IPO?
The s1 listed 50m shares as coming from existing share holders but they did not break it out. Usually that is employees with vested shares and occasionally other investors. Was more common in the dot com IPO's but Zynga did that too as I recall
Its a negotiation that happens with the bank that is taking the company public. They are trading off the 'optics' of a bunch of people selling their stake at the IPO vs value. The lockup period for executive (officers) and non-officers is also negotiated.
The bankers want to strike a balance between employees (especially officers) who have concerns about being whipsawed with the stock price and the perception that they feel the company will grow in value over time so holding the stock is a "good" investment.
It's not an exception to the lockup, they are sold as part of the IPO. It's like taking money off the table in a VC round. Broadly speaking shares can come from three places when they are sold: new, which causes dilution, allocated but not granted, which is where the majority of employee grants come from, and finally vested ownership that is held by individuals. An IPO will have some mix of the latter two almost always. The relative proportion signals how bullish the insiders are to future prospects for the stock.
> So now we know that there is atleast some appetite for shares with no controlling interest and no indication of paying out a dividend any time soon.
Not to mention their $500 million net loss last year. There are cheaper cash incinerators.
> I'm interested to see if they try and make people view the company via GAAP accounting(PnL) or non GAAP measures like engagement, monthly users, etc.
There's no doubt in my mind -- they'll pull some social flim-flam for as long as they can. The whole thing is just nuts. No one's going to buy them now, and their pivot to becoming a "camera company" has yielded an even uglier version of Google Glass.
Man, this surveillance economy bubble feels so close to bursting...
> So now we know that there is atleast some appetite for shares with no controlling interest and no indication of paying out a dividend any time soon. A current market cap of 30 Billion is a pretty darn big accomplishment!
This is really disturbing. I don't know if its an indicator of too much money in the market, or just the fact that the market itself has expanded so much. Why would investors be OK with losing power?
It could be an indicator that a lot of people invest without regard for foundational questions like "does this valuation make sense" or "does my ownership interest grant me any control of the company?"
And I'll be the first to raise my hand on that front. On the face of it, I'm not really interested in owning a stock like this. But I've stopped picking stocks entirely, now I just invest in the stock market through index funds. And there are a lot of people like me -- enough that Vanguard funds own about 5% of just about every public company you can name. People like me are essentially saying, "We don't really care what this company does, how much it costs, or whether its stock can vote, we want to own 5% of it." (And that's just Vanguard -- there are plenty of other passive funds out there, too.)
In an IPO that sells 10 or 15% of the company, these "buy at any price" investors can eat up a pretty big chunk of the available shares. So all it takes is a few investors to say, "yes, we want to buy at this valuation," and the rest of us will blindly follow.
I think the incentives of different investor types should be considered.
If you're a speculative investor and plan to own for <1 month or so, who cares about voting rights.
If you're a long term investor, say >2 years, non-voting shares means the company doesn't have to burn itself for quarterly or annual results.
Activist investors won't like it (but there's not really that many of them).
Will probably work well as long as things are going well for the company. If things go badly, management will need to be very self-aware or the recourse will be a large discount to the share price.
The $SNAP price isn't being driven by index funds. Index funds also aren't about blindly investing ("we don't really care what...") - it's about delegating that trust. For example, SPY is delegating that to a trusted entity (you're trusting that the S&P 500 will remain a meaningful measure of the US stock market).
> "Delegating to a trusted entity" isn't different from "blindly investing"/"buy at any price".
Those are incredibly different things. If I put $5000 in SPY, even if the S&P 500 index contains $FOO today I'm not telling my brokerage firm to "buy and hold $FOO at any price", because that's not how the SPY index works, and it's also not how index fund investing works a strategy either.
In addition, most indices are based on fundamentals like market cap, earnings, and price - either directly or indirectly. Putting money in an index fund is delegating the work of that research to a trusted entity, in exchange for a fee (which is usually bundled into the trading prices).
Actual "blind investing" or "buy at any price" would be someone who trades on individual stocks without doing any systematic research, either directly or through a delegate.
> If I put $5000 in SPY, even if the S&P 500 index contains $FOO today I'm not telling my brokerage firm to "buy and hold $FOO at any price", because that's not how the SPY index works, and it's also not how index fund investing works a strategy either.
Unless you can educate me as to what you mean here, I understand that this is exactly what is happening. As long as $FOO remains in the S&P 500, buying and holding SPY is financially (roughly) equivalent to buying and holding equity in $FOO in proportion.
> Is Snap big enough that indexes tracking the S&P 500 would buy up Snap?
With the risk of stating the obvious... index funds tracking the S&P 500 index buy exactly the 500 stocks that form the index, no more no less (modulo some derivatives that are highly correlated with the index).
So they will buy Snap whenever S&P decides to include Snap in the S&P 500 index. Snap has already surpassed the minimum necessary market cap (~U$5 billion). There are other criteria, but ultimately the inclusions and exclusions are decided by committee [0]. When they do decide change the index, they announce it well ahead of the date when the change is effective.
Vanguard index funds don't participate in IPOs. Their rebalancing occurs on a regular schedule. Constant purchases would undermine the effort to keep fees low.
For the same reason 50% of the US didn't vote in the last election. Or employees don't demand to view board decks.
Most investors are buying as a way to make money off of continued success. They don't want to control the business or make decisions, and even if they did, they don't want to invest enough to make a dent in the normal 1-share-1-vote sort of model. They're looking the company and hooking their accounts to its success. In the public markets, most investors aren't in it for the control, they're in it for the returns.
I think you have an interesting point but I disagree with your analogy of a presidential election. The motivations for voting in a presidential election are not always financial (even though future policies could very well determine your own financial outlook..). I think you're right about investors are in it for the returns but having control can help steer your returns. If everybody thinks the CEO is not increasing shareholder value, you vote to remove said CEO. This is not always positive either as many investors want quick returns and not always have patience for visionaries..
I guess my point was more that at some scale, it feels worthless to vote at all. If I disagree with Snap's CEO, my $500 of stock feels about like my vote in the presidential election. I doubt my input changes the course of anything.
There's a good reason to exert control in both cases, but for many, it feels futile to do so.
Corporate bonds are not a slam dunk win over investing in dual class shares of an IPO.
What kind of corporate bonds specifically? Is it Super safe AAA rated?[1] Or high-yield (aka "junk bonds")?[2]
If an investor wants big returns like he's hoping for Snap's IPO, buying safe AAA bonds isn't going to match that. E.g. Microsoft's 10-year bond only pays 3.34%.[3] That low interest rate barely above Treasury bills is the "price you pay" for safety. If you want to take more risk with a "BB-" corporate bond from Frontier Communications[4], that will pay 11%. That still won't match the potential upside of high flying stocks and the investor has to factor in Frontier's increased potential for defaulting on that debt. (Frontier wouldn't have to pay 11% if all lenders were confident the company would pay it back.) It's not just the bankruptcies to worry about; lots of corporations default on their debts.[5][6]
It's perfectly rational for some investors to calculate a risk-vs-reward and conclude that investing in shares with reduced voting power is better putting money into low-grade corporate bonds.
Well, that's where the institutional smart money is, buying up and depressing yields on high quality corporate debt.
Bond market pricing also benefits large investors. A small guy buying 20-30 bonds will pay higher markup, higher commission and be quoted higher price than a large player with an 8-digit buy order.
In a stock market (outside the dark pools) two players will get quoted roughly the same market price. The larger guy is likely to be at a disadvantage, as exposing a large buy order might lead to supply tightening.
One of the things that I personally believe is that when a company IPOs their priorities become heavily skewed towards profit and earnings, often over a short term period, above all else. And I think that hurts them.
I'm not sure that removing the voting rights of stockholders completely eliminates that pressure—it's probably also rooted in having to be on earnings calls, and the price fluctuations of bad earnings calls, etc.—but remove those voting rights might help to eliminate some of the negative, short-term-profit-seeking pressure.
If it does, it seems reasonable for some investors to want to invest in companies that aren't as worried about voting rights takeovers.
> remove those voting rights might help to eliminate some of the negative, short-term-profit-seeking pressure
For every long-term success story (FB) there's also a story where investors gave the founder super-voting rights and got pretty much nothing in return (ZNGA).
If the company was to run into trouble these restrictions would probably be another reason (in addition to the performance) for large investors to avoid the company. Long term it remains to be seen if this will matter or not but my guess is that as long as it is sailing high many won't care.
Note that Google and Facebook have effectively the same level of founder control, albeit with different implementation details. Google even had to issue a new share class in 2014 so that the company could issue more shares without the founders giving up voting control. Snap's approach seems like a more robust long-term way of telling investors that they don't have a say in things.
Yeah, that was especially shady IMO, and I was surprised back then as well. But I thought that was an exceptional case since it was the only company doing that, and it is so profitable etc. But if companies/founders can get away with this, what stops it from becoming the standard?
Investors who care about returns care about voting power. It's pretty obvious why. The fact that Snap unloaded despite their totally asymmetrical voting structure supports the conclusion that Snap's new "owners" didn't deserve a vote in the first place. Time will tell whether their gamble will pay off.
GAAP vs non GAAP accounting refers to how you calculate PnL, not whether you use things unrelated to accounting to hint that you are growing and might make money in the future. You can definitely use strict GAAP accounting and also brag that users are super duper engaged.
I for one appreciated Greg's note and your follow-up. When you said non gaap initially I thought you explicitly meant the non gaap but still accounting systems that a large, large number of companies out on quarterly earnings (they'll do it right next to it, say " gaap X, non gaap Y ".
So you may see it as pedantic, but I think it was a useful clarification.
Yup i think 'earnings vs user growth numbers' is a great way to put it
My thinking was that 'People worried about money losing companies with huge valuations' is a popular cause of consternation and 'People worried about non-GAAP accounting' is another popular (for some people) cause of consternation.
Gaap(Pnl) vs non-gaap made me suspect you were conflating the two worries, and made me wonder if lots of people might also be confused by what accounting/finance/investment people are generally talking about when they talk about "Non-GAAP measures"
Agree. As a person in accounting/finance/investment, measures like user growth are called KPIs (key performance indicators) and are distinct from NGFMs (non-GAAP financial measures).
This $27.8 billion dollar valuation tells me that somewhere along the line, my job and lifestyle have caused me to detach from a significant chunk of society. I've never used Snap or their platform. I don't even really know what the benefit of their service. I am curious if I'm in the minority or if there's lots of developers like me who aren't able to comprehend these valuations.
> my job and lifestyle have caused me to detach from a significant chunk of society
Yeah, the 13-21-year-old chunk of society. Do you, as a Linux Kernel Developer, happen to be within that demographic? Even their IPO roadshow video (which I see has now been removed) talks about their "13-34-year-old" user base, and then emphasizes the far higher levels of engagement and far higher potential among the lower half of that range.
MySpace had that one nailed, and look how that turned out for them. This is exactly the kind of demographic that is susceptible to fads and keeps leaving dead services in its wake.
Well to be completely fair, it is quite embarrassing even for me as an adult to have my parents/grandma looking at the stuff I post of facebook, which has caused me to reduce engagement there and post to instagram, which is restricted to close friends.
The MySpace argument is tired and stale and not even that insightful. MySpace made several mistakes as a company that had nothing to do with their premise (connecting people, the same as Facebook). It just turned out that Facebook had better execution in the long run.
Just because the myspace argument is stale doesn't mean it's wrong.
I don't know if you remember how that went down, but people loved myspace. It worked well, then all the cool kids jumped to Facebook. It was herd mentality.
Definitely a trend situation over product features.
With network effects, you live by the sword and you die by the sword.
I disagree, Myspace could have done incredibly well if they focused on their strengths in music early on. Instead they wanted to be a media company going in a bunch of different directions, which sounds very very familiar. Snap is doing publishing with content partners, they announced special formatted tv shows, hardware and glasses, AR and adtech.
Wanting to be big in music = wanting to be a media company, and comes with a similar set of pitfalls, namely being beholden to a bunch of anti-tech established music companies. Also, I'd challenge whether there is room for incredible success. What's the biggest music success? Spotify? Pandora? Compare that to Facebook, and it is clear which direction had more potential.
I would disagree, being a publishing company, a movie review company, a comic book company, video company ... these are all things Myspace was attempting, is not the same as being a music company.
I don't think that's quite right. Snapchat does have a chat feature which allows you to essentially send feedback on peoples snaps/stories, so you could absolutely tell people they're wrong for making some statement.
It also depends on whether you have friends that use Snapchat. I'm 24 and a college senior, so within the right age group, but none of my friends use Snapchat. It's only fun if you have friends who use it.
But do you think their actual sources of revenue (all the ads and paid stories) are focused towards older people? From what I've seen, it's mostly gossip and stories aimed towards younger people.
Oy, that. Honestly, with all their algos I'm confused why Facebook lets one friend cover my entire feed in Shah Rukh Khan. I don't even know who SRK is!
Heck, I'm 24 and have a lot of trouble understanding the appeal of Snapchat. Despite lots of friends trying to get me to use it I've never figured out how to get value from it.
Most of the value I get from Twitter, Instagram, and Whale is from people I don't know in real life. Facebook is the only social network for me that's mostly real life friends.
Since you said "society", it's worth noting that Snap is really not a player in Asia. In Japan and Korea, Line is dominant. In China, there is doubtless something else to take its place.
I have been struck with amazement at the rise of apps like Snap, Twitter, and Instragram. They have captivated an entire generation, leaving me on the sideline. As a developer, I suppose I'm not the most social being on the planet, but it does concern me that I have become "detached" from everyone else.
I spoke with an Uber driver the other day whos 14 year old son has 700,000 instragram followers and is making money selling advertising to big brands like Target. I'm not old, but that sure as hell made me feel old...
I think there's a socioeconomic side of this that isn't discussed enough.
I have a highly engaging, challenging job that pays well. I'm a holder of an advanced degree, regularly read long-form books, and am engaged and will be married soon.
Frankly I think I'm pretty typical a lot of people on HN, and developers in general. I don't consume much media, though. I entirely checked out from facebook and haven't looked back.
When I think about who the heaviest users of facebook and snapchat are, I think of people who have boring jobs that don't require their full attention: working retail in a mall, gym attendants, hotel workers, basically anyone working a minimum wage, customer-facing job with a lot of time to kill. These people tend to be young, but they also tend to be less educated and not earn that much.
Looking at my own life, I remember thinking how backward the rich were when I was young, they were late to the internet and some still don't even use email (I think Buffett does this?) It's ironic that as developers have risen in prominence and income, we may be excluding ourselves from using the very mass-market products we ourselves create. It's weird. Are we drug dealers?
Developers build the infrastructure that manufactures the drugs. The owners of that infrastructure are kingpins. The users of these platforms are drug dealers. Each follower or friend is an addict.
Welcome to the future. The economy's mostly driven by incredibly invasive advertising, normalized spyware, and kids sending each other naked pics. It's far worse than any 80s film ever imagined.
Social networking is becoming the dominant form of media. Media controls what people think, including their politics, and what products they buy.
You need to stop and see the big picture here. facebook is basically as powerful as the entire TV industry combined, with all the power concentrated in a single company. The NYT recently reported that the average US facebook user spends 50 minutes/day on facebook. And people are watching less and less TV all the time.
I'm not saying this is a good thing, quite the opposite, but I think it seems dishonest not to acknowledge what a huge effect these companies have had on every level of our society, from how people talk to friends, how politicians communicate with the electorate, how people decide what to buy, etc.
I never said social media was not powerful. The question is what percentage of the "economy" it makes up. This source[1] puts the share of the "internet economy" at 5.6% of US GDP. I'm not sure how those terms are defined in this study. But the point remains that no matter how powerful you think the internet and social media have become, the economy is large and diverse.
Here is one breakdown of GDP by category[2]. Even if you are generous and include all retail (6%), information (4%), and entertainment (4%), that is still only 14% of the economy. I think people forget just how much economic activity is tied to things like government, real estate, healthcare, manufacturing, etc. The poster I replied to seem to imply that social media was making up most of the economy, and I think that's demonstrably false.
My fiancee is an architect and I invest in real estate so I probably have a broader view of this than most (if only due to the luck of my draw/circumstances). Plus my father worked his entire career in factory operations.
Part of the problem is that HN is so software/Bay Area-centric, it's an industry cluster that pushes out a lot of traditional S&P 500 companies. To be honest, I have mixed feelings about this. On one hand, living here, you are definitely "in a bubble" thought and perspective-wise. On the other hand, living in the bubble means you get to see what's coming next, and let's face it, the S&P 500 is backward. It's hard to appreciate how backward so much of it is, it's practically incomprehensible to the average Bay Area tech person. People overall are paid just way less, 40-hour weeks are the norm, people don't read books or retrain much, everything is done via emailed word documents and playing "did you get the latest changes" vs. VCS), etc.
Arrogant? Maybe, but you tell me how companies here can post such exceptional operational performance relative to their more "average" peers.
Healthcare is enormous. Holy crap, what, 24% of GDP?
I think the truth is somewhere in the middle. Don't forget Google makes its money from advertising. And as more people grow up expecting to have everything for free, more people will bawk at paying for ownership of anything. It's why so many people will sustain countless invasive advertisements to play a mobile game over weeks/months/years instead of just paying a 1 time fee of a few dollars.
Advertising has transformed our economy over the past century, and especially this past decade.
> And as more people grow up expecting to have everything for free
I’m convinced this is more of a service problem than an inherent generational problem. At the moment many of the best-in-breed applications are ad supported because their whole raison d’être revolves around network effects and making people pay in or subscribe cuts against that.
As time goes on, though, places where a subscription based business model can fit will start to catch on as the underlying technologies mature to the point where you can get any old dude out of college to run them rather than needing top-quartile development talent. This is especially true as you become able to position applications or services as ‘premium’ products.
It’s easy to make people uptake new things with freeware business models. But as the products and services get more buy-in you’ll find more scope for other business models to thrive. For example, there is a cottage industry of subscription based matchmaking services that offer a more personal touch than typical online dating.
How does he sell the advertising? Product placement in the photos?
(I'm not interested in advertising. I'm just curious.) I'm surprised by Target: Why not rotate their product lines and improve selection rather than just advertise to teens? Most of them would probably go to Walmart where it's cheaper.
> How does he sell the advertising? Product placement in the photos?
Yes, that's probably it. It's the "influencer" model. If 700,000 people who are following you on social media see you wearing a cool jacket from Target, and you say something nice about it in the comments, then those people are more likely to buy that jacket than say, seeing some random person wearing it in a TV ad or a catalog.
I'm not sure, I didn't get his username, and even if I did, I'm not on instagram.
I did ask how he does it though, and he said target sends him pictures to use. I was confused by that response because, I thought instagram was more about product placement (him hanging out with his friends, with target logo in the background).
You are definitely not alone. The Snap product has been geared toward younger people as Facebook once positioned itself. Investors are betting that once the product and audience mature there will be huge payouts like they saw with Facebook.
There is a big risk here though. Twitter has crashed and burned when compared to Facebook.
I think it's worth noting that Twitter essentially lost to Facebook. Facebook's dominance pigeonholed and limited what Twitter could evolve to. And I'm not sure there's room for more than a couple social networks.
I don't see who SnapChat will lose to besides themselves (i.e. monetization). IMO Facebook/Instagram isn't well positioned win today's 13-25 demographic.
The point is, someone will win. And right now I'm not sure who else is in the running.
I see Facebook as the email of this generation. It's not exciting, it doesn't change a whole lot, and virtually everybody has it. I think we're just seeing a lot of novelty, flash in the pan apps coming and going while Facebook maintains it's boring yet stable position.
Facebook is a better messaging platform than SMS, for me, because I have friends spread across the globe that I can contact with a simple internet connection.
You can use Hangouts for SMS and 'HoIP' still, but they made it a lot more difficult. I'm really not the target demographic for messaging applications, but I am baffled by how Google has handled Hangouts (which seemed to be incredibly popular and worked better 10 years ago - I'm avoiding the name changes over the years because I was able to use the same account continuously), Allo and Duo (I have never tried either and don't understand what they are trying to do).
It honestly feels like Google is actively trying to sabotage themselves for messaging. I just don't get it.
I'm gonna go out on a limb and blame google plus, wonder how much long term damage that did. Put off tons of people (aka me) from even trying these services during the time that they should have been gaining traction, and left everything in disarray as they tied, and then tried to untie, all of their services together.
I think duo is the right idea, where making a video call should be just as easy as making a phone call, but so far every time I've tried to use has been met with "install what? can't we just facetime?"
Internally, how do Googlers feel about its messaging "strategy"? I've heard the explanation that Google encourages the schizophrenia with the "launch a product to build your promo packet" philosophy, but that doesn't seem to cause issues in other product lines. But the strategy also certainly can't be intentional, since Google's squandered an obvious chance at dominating the messaging space and is teetering on irrelevancy there.
> You can use Hangouts for SMS and 'HoIP' still, but they made it a lot more difficult.
Yes, it's exactly that 'more difficult' I mean by 'you can't bundle them any more'. SMS and 'HoIP' with the same contact used to appear in the same conversation, but they removed the feature - disabling it for those with it enabled a priori, and disabling others from enabling it.
You can add Snow to that list. From what I gather it's basically a Snapchat clone by the same company that owns Line. I've noticed my Korean friends here in LA use it all the time to communicate with friends in S. Korea.
I've got really bad news for you, every month older you get the more likely you are to experience this. And the next thing you know you'll be tuning through available radio stations and find that you can't find a station with music you like on it :-) Just don't succumb to EOG[1] :-)
the fact that you havent used snap doesnt really speak to their valuation. here are some large cap (+$200B) U.S. companies that i have never used: jpmorgan chase, wells fargo, at&t, bank of america, pfizer, verizon.
Right but I think that most people have used a bank, telphony company, or prescription drugs in the past.
OTOH, depending on how loosely or tightly you define what snapchat is ("ephemeral image communication platform", "image communication platform", "communication platform", "social media", "news aggregator"), there are huge groups of people that have never used snapchat or any competing products. There are lots of people in the US who have never used snapchat, instagram (stories), whatsapp, or even facebook messenger (the app specifically), which are the closest comparisons to snapchat. I think that's the point.
Official company description, possibly useful in defining what Snapchat is:
"Snap Inc., formerly Snapchat, Inc., is a camera company. The Company’s flagship product, Snapchat, is a camera application that helps people to communicate through short videos and images known as a Snap. The Company offers three ways for people to make Snaps: the Snapchat application, Publishers Tools that help its partners to create Publisher Stories, and Spectacles, its sunglasses that make Snaps. Snaps are viewed primarily through the Snapchat application, but can also be embedded on the Web or on television in certain circumstances. Snapchat opens directly into the Camera, helping in creating a Snap and sending it to friends. The Company’s advertising products include Snap Ads and Sponsored Creative Tools, such as Sponsored Lenses and Sponsored Geofilters. As of December 31, 2016, on an average, 158 million people used Snapchat every day to Snap with family, watch Stories from friends, see events from around the world, and explore curated content from publishers."
>here are some large cap (+$200B) U.S. companies that i have never used: jpmorgan chase, wells fargo, at&t, bank of america, pfizer, verizon.
But you probably have used those companies without knowing. You've probably traveled through an area with cell towers owned and operated by att and verizon. You've maybe received financing on a purchases or had financial services through a smaller bank in some way aided by chase/wells fargo/bofa. And you've never used any of pfizers commercial products? How about advil, chapstick, dimetapp, or robitussin?
I think it more speaks to that the parent comment doesn't understand the product and why you should use it (I am with the parent comment I don't understand snapchat).
> my job and lifestyle have caused me to detach from a significant chunk of society
For the vast majority of Silicon Valley, this happened a long time ago. Tech valuations have been divorced from the lives people lead for quite a long time - Snap is just the first instance of this happening to people who are in the Valley, solely because of their age.
While i'm generally in the same boat with you, i do have a couple of 30+ friends who use Snapchat. That's a couple more than Twitter. I personally don't know a single person who uses Twitter, regardless of whether they're in tech or not, which paints a slightly different perspective on the whole Snapchat phenomena for me. I also want to point out that the possibilities of what Snapchat can become scares the shit out of me. They have the largest database of people's faces and they can do a lot of things with it.
If you have no need for integrated texting/flirting/sexting/following, it's not of benefit right now.
Microsoft paid something like $40/user for hotmail, and IDK what for LinkedIn (20B?). What other platform will these kids move to? Maybe Instagram, but that leaves two big, well-funded players with ~500M users down the road. Billions to create/integrate with media/virtual content.
Unless something supplants snap for the tweens, I think they've got a lot of long-term capture. Their "phones" are their universe.
I can't tell you how much this blows my mind. So no, you're not alone. I consider myself a pretty normal person, one that can have an open mind and get along with people. I can't for the life of me figure out why snapchat is so popular. I also can't figure out how to use the app or what it's use case is over Instagram (an app I use heavily). I'm 27 by the way.
It's funny, because I find the app thoroughly confusing to use and understand. I initially blamed myself for being dumb or not giving it enough of a chance, but when I asked a few of my friends who do use it, they kind of just shrug their shoulders and can't really explain how it works either.
You're not alone. I'm 24 and only had it installed for a day or two before I gave up on it.
Maybe I'm the type of person who doesn't need a constant glimpse at other people's lives... or maybe I already had Facebook and Instagram for that. It's likely that the same inertia will help Snap hold onto its older user-base as it matures.
I started using Snapchat after they added their dynamic filters. My kids, aged 2-7, think it's hilarious to have their faces warped or overlaid with funny images. My wife and I mostly take videos of them giggling while their face has puppy ears and then send it to each other and/or their grandparents.
I've seen older people (30+) use it to share trivial moments of their lives to people who don't live with/near them. The barrier to sending a disposable short moment is a lot lower than having a video chat or sending a permanent video file, so there's definitely utility to it.
I'd recommend Tim Wu's "The Attention Merchants: The Epic Scramble to Get Inside Our Heads" for broader understanding.
The only valuable currency of the information economy is human attention, and those who harvest it most efficiently tend to command higher prices while re-selling it to advertisers, who all vie for a piece of it.
In this sense Snap, Facebook, television networks, books, Netflix, newspapers, churches, 9gag, radio stations, PlayStation Network, billboards, blogs, professional sports leagues and magazines all compete for the same currency and those who accummulate the most get to name their price.
Yeah.... you know I bet there's a lot of 30bn companies out there you've never heard of, or have never used their products. Society is BIG, 7bn people in the world.
However, if you've eaten food in the United States, John Deere likely had something to do with it. It's just further up the supply chain. However your point is still well taken.
The two single guys in my circle of friends use it for the kinds of communication you wouldn't want to occur in the same app where your relatives are (say, Facebook/Whatsapp). One of them's outside the app's usual age demo but is definitely around them enough that it's a very valuable app for him (network effects—everyone at any given bar has it and you'll have much greater success connecting with them over Snapchat than anything else).
I don't know anyone else who uses it, but the rest of us are boring married people who don't go to bars much (and not for the same reasons if we do). A couple of the marketing guys at work send stuff out on it for the company, I gather, which is really weird to me since my impression is that it's (still) mostly used for sending clips of drunken stupidity and nude pics or hookup arrangements. They definitely don't use it to message grandma—that's what Facebook is for.
The vast vast vast majority of snaps are not nudes or drunken debauchery. Most of them are just mundane moments of life: I saw a building while walking down the street, or, here's my lunch.
Snapchat is useful and popular because it is a way for people to say hi to their friends without having anything to say. You just take a selfie with a filter, make a face, and you're done. This lets you feel close to your friends without having the pressure of actually having a conversation topic.
The genius of Snapchat is that because photos are ephemeral, the bar to create content is as low as it gets, which results in orders of magnitudes of more content creation and sharing compared to platforms like Instagram. On Instagram, you spend all of your time obsessing over the perfectly angled and filtered photo, hoping to get as many likes as possible. As a result, you'll post on Instagram once a week, but you'll post 5 times a day to snapchat. That's a two-orders magnitude of difference in usage, which is why Snapchat is so successful.
Valuation are not very meaningful pre-IPO I suppose because there are a lot of downside. So you can invest $1M at a $1B valuation, sell the company for $30M and still come out with $XX millions.
I guess the same is not true for the average person who buys into a public company. Because if you buy at $1 and tomorrow it is worth $.32c I do not see how you will not loose money.
I know that the Snapchat platform is worth something, it has high engagement and adoption of 18-24 year old age segment, and that is worth a lot in terms of attention and advertising $s.
However, this just feels completely out of proportion to earnings and downside does not seem priced in. Willing to be proved wrong of course, but especially seeing as they are non voting shares, I cannot understand this pricing.
And yesterday on eBay, 22 pairs of Spectacles were sold, with one pair went for $229 and 2 others went for $200 each, even though http://www.spectacles.com has been offering them for $130 since last Monday -
Regarding the Spectacles. They only fetch those prices due to scarcity. If Snap made them available to a more wider audience, people wouldn't be buying them on eBay.
to me this all sounds like a company with little revenue and no focus and too much money that they are just trying everything to see what sticks to get them to bigger revenue
I don't think scarcity indicates anything more than a supply-demand imbalance. Some people buy products in this area just to resell even if they don't actually want it. It's tough to make an apples to apples comparison when one company artificially limited the early supply while the others didn't.
The hard part with these things is that in some ways progress and growth is non-linear. So Snap has (by all accounts) done a masterful job of launching their first hardware product:
How do you value that? I'm of the opinion that AR style glasses are the technology that will be the next tech wave post mobile phones (FB buying Oculus and Google pushing so much money on MagicLeap is explained for a similar reason).
So how do you consider Snap's Spectacles? Say there's a 10% chance that they become the initial dominant hardware player in the post-phone mobile space? What's that worth?
To me, it's a thought experiment about where SnapChat will be a few years in the future.
Consider that they are pretty indisputably the leaders in terms of shipping real, actual working AR on mobile -> https://youtu.be/Pc2aJxnmzh0
So "how do you value" the number one AR company on the planet having shipped their first hardware device that:
- Has sidestepped all the "glasshole" baggage of Google Glass
- Genuinely nice looking non "borg" styling
- Actually works as intended
- Masterfully executed on a unique and successful marketing rollout. I completely agree on your point that it's a "pair of glasses that stream video from a camera", the important thing is that they've built a whole distribution and demand system where that is actually something people want in large numbers.
So, compared to MagicLeap, HoloLens, etc. SnapChat is working from a "worse is better" standpoint where their v1 is horrible on a feature vs feature basis against the Hololens (and presumably whatever MagicLeap is going to ship).
But, I feel pretty confident in thinking that they're selling many more units of their Spectacles (at $129) than Hololens (at $3,000) and they're learning at a much faster rate.
The question is: What will Spectacles v2-v5 look like? At what point do they not need a mobile phone? At what point can they make phone calls? At what point do they get gestural support (another area where Snapchat feels like a leader on mobile).
It's hard to look at an early click-wheel, monochrome screen iPod and see a mobile phone ecosystem worth trillions of dollars and I think it's far from certain that Spectacles are the equivalent, but I think there is a real chance that is the case.
The same way you value anything. AR might be "new", but "new" things aren't new; they come out all the time, forever.
>It's hard to look at an early click-wheel, monochrome screen iPod and see a mobile phone ecosystem worth trillions of dollars
Which is why it would be incredibly naive to, in any way, predict Snapchat to have that sort of success, because it is so incredibly rare. It's like playing the lottery: yes there's a winner, but the odds of any individual company becoming "best ever" are incredibly slim. I have the same sentiment toward TSLA. I invest accordingly.
I think we are saying the same thing, I just lean cynical.
No disrespect to Spectacles, but camera glasses have been around for years. It's not AR and it's not yet even material to Snap's business (according to Snap!).
Right, but this goes back to the arguments everyone had about the iPod - MP3 players had been around for years, the iPod nailed the execution (eventually - the first version was not a success). Nor was it material to Apple's success, at the time.
The point is that proven execution is a good thing, because it implies you'll do it again.
Great point. I know it's not the best comparison feature-wise, but look at the public reaction to Google Glass vs Snap Spectacles. Snap understands how to make the product sexy, not just tech-sexy. Snap understands how to make their innovation fit into the lifestyle of their users.
Anecdotally, it's been interesting to see GoPro take off over the years, spreading from "extreme sports pros" at the beginning to include more casual/recreational uses now. A lot of friends who wouldn't have considered buying a GoPro 5 years ago (because "they don't do anything exciting/dangerous enough to need it") are now considering GoPros to document the slightly more exciting parts of life. These same friends are even more strongly considering Spectacles, because Snap made a product that fits into their lifestyle (lowering the barrier of what is "interesting enough" to capture)
The company might not be doing well but their product is solid. If they don't figure it out, GoPro is going to be acquired by someone, that's for certain.
Perhaps, but their "solid product" isn't selling well which makes it seem less solid. Everyone already has a very high quality camera with them all the time and almost no one does extreme sports that would benefit from a more sturdy camera. I have one and don't even know where it is, it's useless.
spectacles are record-only at the moment without any viewing for the wearer. adding user-viewing is at least one order of magnitude more difficult than the current device. is there any evidence that spectacles will be transitioned into AR?
for the majority of would-be shareholders is non-voting shares really that big of a problem, genuinely curious? Even if the votes:shares were 1:1 wouldn't you need a huge percentage (like > 10%) to be an influencer? If I as an 'average Joe' were to personally put down a comparatively minuscule $25k on SNAP would those votes count for much when push comes to shove?
The SNAP thesis I like the best is - "Twitter-like growth with FB ARPU".
The monetization potential of this company is massive (geofilters, sponsored content, hardware with spectacles, etc.) and there's no direct comp for that. Pokemon Go showed us the bleeding of digital to physical, and Snap has the potential to be the first company to unlock value from it (ex. geofilters). Plus you can view SNAP as a call option on AR and their potential to be the main camera (when something exciting happens, which app do you open first? For at least in my social circle its by far Snapchat not the Camera app/twitter/etc).
That being said, they face a massive threat from Instagram Stories and now WhatsApp Stories. Though a caveat - while their DAU growth has slowed, it's actually been in international markets primarily (and I think wrongly they don't care enough about dealing with low-bandwith, "unexciting" users). If they can keep a healthy growth in US to escape the FB threat they can afford to lose internationally.
Their first 1-2 earning report will be very revealing for SNAP b/c the expectations have been set and I'm looking for them to do the following:
1) Raise ARPU at similar rates
2) Maintain healthy DAU growth in the US
3) Create new product innovation around AR/Spectacles/Lenses.
If they don't hit at least one of those goals (and preferably two or all three), than I would be very concerned for them.
I'd argue it was poor/slow execution that led Pokemon Go to lose cultural relevance. If they had introduced more pokemon, ability to trade/battle, etc. they would still be highly relevant and a behemoth today.
When I post to Stories I also post to "Memories" so everything is saved on the app. Plus I usually go back to snapchat and save pictures from my story manually if I want to have it saved locally. Most people I know do the same.
I would also say a camera that uses it's full resolution to take the photo instead of just taking a screenshot... For a camera company, they sure do have a shitty camera/product
I like the thesis summary. Let's be honest WhatsApp "Status" is terrible. I've checked it daily since I got it on my phone and have only seen 1 person post on it. Instagram Stories is just OK. Snapchat has, so far, cornered the market in this particular "storytelling" niche.
There's also a more natural integration with how ads are injected into the experience. Snap works carefully with ad buyers to make sure that the ads are engaging and flow with the rest of the product. That's an important differentiator.
> Pokemon Go showed us the bleeding of digital to physical
Niantic had another game (Ingress) that Pokemon Go is pretty much a copy-paste of. Compared to P:GO, Ingress was/is not very successful.
I think this only shows us how desperate people still were for a real-life Pokemon game (and also one that didn't require buying gaming specific hardware). They put up with a terribly unstable app with few features that got less stable and removed more and more features over time.
Also everyone I encountered when I was playing had AR turned off. It was a fad itself within the fad of pokemon go. Fun for the first like 5 catches and then an annoyance/battery drain.
I don't buy that sponsored content or hardware are that exciting in terms of monetization potential. Geofilters are interesting new ad product, but as an ad product they are not really that exciting as you lose virality(ephemeral) and sharing. They are limited to your immediate social network.
>it's actually been in international markets primarily
I'd like to know where you read this. I'd still be concerned because they've pretty much saturated the millenial market at this point. They need to grow in other demographics or internationally.
Maybe the future is in these over-glorified social media lifestyle companies acquiring or bailing out "worthy" startups working on "hard problems". Sort of like how ad-funded Google is investing in health longevity research and the like.
The future is going to be funded from the largesse of dumb app companies, because the public would rather fund dumb app companies than rocket ship firms.
That or because it's more profitable to do so, especially on a risk-adjusted basis? What's with the negativity around funding apps if they create tangible value? What makes them "dumb"?
If you believe there's some amazing untapped opportunity in funding rocket ship companies, then perhaps you should raise some money from LPs and invest in rocket ship companies.
I saw pretty easily how Instagram could be worth a billion to FB, who has a social network and wants to expand their user base / stop competition from rising.
I don't understand how these shares that pay no dividend and give no voting power are worth $24 each. They are basically "SnapChat Fun Bucks." Anyone buying it just hoping another person down the line will pay more for it. On top of that, we know there's a large number of people holding it (employees) that are going to start selling their shares over the next year.
To be fair, you didn't take into account the difference that $1B was worth between those times. Not just inflation, but the economic situation in 2008 as well.
Can someone comment as to what kind of payday this IPO translates to for say the 30th engineer hired by Snap? (I realize that this is impossible to answer accurately, and that there is still a 4 month lockup)
Let's say you started in 2013 when Snap's valuation was $800M. You were granted $80K (0.01% of the company). This is likely a very low estimate given what I've heard about snap equity. Snap raised good rounds so dilution isn't much of a concern. Snap went up 35x in value. As of today your equity would be worth ~$2.8M.
That means, today, those grants are at least 100k - 350k shares at a $0.99 strike price (assuming no other splits). Or $2,300,000 to $8,050,000.
Unless I'm missing something?
Edit: Ah the numbers above are actually too low. If you look that email also lists the percentages. 10,000 shares at that time was 0.022% which at the current valuation is actually $5,280,000 less some likely dilution.
Interviewed with Snapchat about 3-4 years ago (sub-100 employees). Did not get an offer, but their interview process was pretty standard and professional. They were giving out 0.001% equity at the time. I'd say it would come out to 250k-500k, but it's very hard to extrapolate.
They were already a mega hit with like 10 employees so I doubt anyone that hasn't been there super early (like first 5 employees) will become a millionaire off this IPO.
In fact, Snap's extreme generosity to employees has already swelled the existing share count. In 2016, it awarded 105 million new restricted share units (RSUs). All of those units, plus around 80 million awarded in previous years, will vest with the IPO. Those grants will represent one in six of Snap's shares. At $16 a share–the estimated high end for the price paid by the underwriters–those grants will enrich its 1,859 employees by $2.9 billion, averaging $1.5 million per person, although the rewards are, as usual, heavily skewed towards the top brass. And that's just a taste of what's coming.
Assuming the founders held 30%, the employee equity was 1/30,000th that of founders. I don't understand how engineers are ok with their boss getting 30,000X their compensation.
Because the engineer doesn't assume any risk assuming they're being paid market salary? The engineer can stop working when they clock out? The engineer doesn't have their own awesome idea? Or they don't have the desire to run their own company?
There's certainly some types of startups where the risk rationale does apply. For example, the founders who went with zero pay for two years and got an early working version and happy customers before hiring their first employee. Yeah, those founders can justify their big percentage.
But the Silicon Valley mold is: a couple of guys quit their jobs, hit up VCs for a month or two with the roughest sketch of an idea, get funded, and hire their first employee a couple of weeks later. That employee gets maybe 1% maximum, or the order of 1/50th or less of what the founders. Meanwhile, the engineer will bust his ass, show up at work every day and code some more at night, debug on weekends, etc. "We're all in this together, team!"
Then on the happy day years later, the founders start pricing out their MacLarens, while the engineers blink "WTF" at their actual payout.
First, equity isn't compensation, it's ownership. Second, it's about risk. Third, it's about luck.
So, if you get paid a market salary and benefits, you can't really expect to own much of the company that's providing you with that salary and benefits as it's essentially burning money on you. If you came in and said "can I get 1% ownership if I take 15k a year with no benefits" that would be a different story, but that's not how this works.
If you go in to a startup and say "I'll take 15K a year w/no benefits" you'll get a flat-out NO. That big exit-event equity is not for engineers. It's for founders.
I'm a light snapchat user (send/receive ~100 snaps/week and post to my story every 3-4 days) and I have a question about its value as an advertising platform. I always skip the ads, and I don't know anyone else who uses snapchat who does't immediately skip the ads. When I do this, is it counted as an impression? I can't imagine advertisers would be happy to know that the ads can be skipped. Also I never use the Discover page and I don't know anyone who does. Yes, I'm one person and this is an anecdote but hopefully advertisers are getting valid engagement metrics.
>A view is counted when someone watches 30 seconds of your video ad (or the duration if it's shorter than 30 seconds) or interacts with the ad, whichever comes first.
Economics novice here. How did we get such a huge difference (40%!) between the IPO price and the current price, when both sides had $3.4 billion at stake on getting that price "right"? Is there some huge information disparity here?
Moreover, if investors feel that $24 a share is a fair price, why weren't they swooping in before the IPO and, say, offering $20 a share for the whole chunk?
Sorry if this seems like a ridiculous question, but it seems to me like there should be some extremely large free market force (on the order of $1.4 billion) preventing the founders and employees from missing out on all that money. Am I wrong?
> Moreover, if investors feel that $24 a share is a fair price, why weren't they swooping in before the IPO and, say, offering $20 a share for the whole chunk?
Well, they were. When a company IPOs, it doesn't sell its stock directly on the market - it sells it to intermediary bankers, who buy it at a price that they think will lock in profit for them when they sell it at the opening bell. (In addition, the early purchasers are also other bankers and trading firms - as an individual, there's zero chance that you'll get the IPO price unless the stock flatlines when it opens).
So, from the company's perspective, the ideal situation is to price that as high as possible, and actually overshoot the market price - that way, they leave no money on the table, and they can raise as much as possible for the number of shares they're selling. In that case, the share price will drop a few minutes after the opening bell, and it'll close trading that day somewhere below the opening price.
Note that that's exactly what happened with Facebook ($FB), and the bankers were pissed off. That's why you saw so many articles about the Facebook IPO being a "failure" at the time. It wasn't a failure for Facebook - they made a ton of money! It was a failure for the bankers who wanted to make a profit on the resale, and instead sold those shares at a loss.
I'm oversimplifying, because there was a lot of other stuff that went into the Facebook IPO that complicated it[0], but that's the general idea.
[0] a lot of people learned the meaning of the "reverse greenshoe" that day!
Hmm. To me that just shifts the questions to the bankers.
If people (who don't know anything the bankers don't know) value the stock at $24, shouldn't there also be competing bankers willing to offer $20 a share for the whole lot, igniting a bidding war that converges roughly near the real price?
Obviously bankers need to make some money. But I don't see how this kind of deal has anywhere near a $1.4 billion dollar overhead, and I'm just boggled by the scale of the disparity.
> If people (who don't know anything the bankers don't know) value the stock at $24, shouldn't there also be competing bankers willing to offer $20 a share for the whole lot, igniting a bidding war that converges roughly near the real price?
Yes, though with a discount factor applied due to the risk involved. And particularly for a high-profile IPO like $SNAP, and one in which a lot of the sellers on Day 1 will be casual retail investors placing market orders[0], it's hard to gauge exactly how much hype there will be.
A big % of the shares purchased at the IPO price came with a requirement to hold the shares for at least 6 months. The people that bought on the open market today can sell whenever they feel like it. Not having that requirement is worth something. That explains part of the delta.
If they priced the stock accurately, there would be a 50% chance the stock would go down on the first day. They want it to go up and thus under price it.
If I own something, I want to sell it for as much as the market will bear. I don't want to sell it and have someone flip it for a huge margin almost immediately.
How is a large first-day bump not considered a failure for an IPO? What is it about the situation that reverses a common sense understanding?
Humans are irrational emotional beings. Somethings feels hot because it popped on its first day trading from $18 to $24. Humans don't know the counterfactual, which is that the stock could have been initially priced at $30 and then dropped to $24. Both result in the exact same value of the company, but the first is definitely perceived as better.
Also, it's hard to say what the "true" value of a stock or company is. In practice, it's what people are willing to pay for some shares of it, and we then as an industry standard take that last traded price, multiply it by the number of extant shares, and then come to a "market capitalization" value.
So therefore, people depend on signals such as whether a stock goes up or down to determine whether or not it's hot, since people don't know what a "true" price for the stock really is anyway.
I was partner in a hedge fund that hired a equity trader once. He's the only trader I've ever met who begged a broker to be nice to him.
So how does it work? Why on earth do IPOs pop so reliably on the first day? (FB is an interesting exception)
The company is only going to be a market virgin once. They don't have a lot of experience as a public company, of course. They certainly don't have a list of funds who are going to buy their stock, that's why they hire an investment bank to help them.
So what does the IB do? Well, they are most definitely not IPO virgins. They do however need to maintain relationships, so that they can tout their relationships to future IPO firms. So how do you do that? Of course you price the offering so that shares are scarce. That way you get two things. One, a reputation for presenting fund clients with almost sure winners. Two, a reputation for having ample access to buyers for your IPO firms. Three, funds will listen to your sales pitches (across many lines of business) because they know that now and again the IB will hand out goodies to their friends.
For instance a lot of Hedge Funds have backup prime broker accounts just in case bad things happen. The PB folks love to sign up funds because it's a foot in the door in case you get angry with the primary PB. So what do they do? They make strong hints that you should open an account so you can get some free money now and again. The amount of free money can be quite substantial per client, in the tens of millions for the largest funds. Ordinary desks will likewise say "hey trade with us, we'll see to it you get something in return from our IPO guys". Now naturally not everything promised can be delivered.
Why does the stock always pop on IPO? Why don't people who aren't allocated shares just walk away? I think this is psychological but seeded by the low-pricing dynamic. If you know the bank knows how many people are interested at different prices, and that they'll price it low, you know the price will go up. But everyone buying is going to augment that, especially if missing out on an allocation means you have to make up that PnL by jumping on the obvious trend.
BTW, rights issues are a similar dynamic, driven by access to shares that can be lent out for short selling. Free money for people who get the shares, bank decides who they want to do business with in the future.
From what I understand, IPOs are very complex, but an ELI5 goes something like this: They want to open the stock to the public without crazy volatility in price, so there is a "pre-IPO" where brokers get access to buy it at $17, then $18, etc. and when people stop grabbing - they open it to the public. I think the underwriter basically buys all the stock for $17/share and then they broker it out to everyone, so anyone that buys over $17 is profit to GS. And GS assumes the risk that they priced it correctly and Snap is happy with $17/share so they're cool with GS profiting
AFAIK the underwriters typically don't buy and sell the stock themselves - but offer it to their clients, who can buy the shares at the IPO price instead of the opening price. The underwriters then charge a fee based on the size of the IPO.
1) They try to be a shade conservative when pricing for IPO because the stock going down on day 1 is a very bad.
2) The underwriters are invented to keep it low because they basically keep the upside - i.e. they buy from Snap at the low price and will sell the next day on the pop.
3) It's volatile because there's little basis for the valuation - they're making almost no money and have a massive, massive valuation = it's hard to establish what they are worth = more variation.
4) Retail investor hype. Every dentist, doctor and retired guy wants a piece to feel like they are 'getting part of the IPO' and there's irrational exuberance which pushes the prices around.
As an user in their target age (18-24) I have to say that since Instagram started introducing features like stories and stickers the activity in my Snapchat has diminished enormously. I would say 50-70% less activity.
I don't know if it's something specific to my social circle or more widespread but anyway it's been impressive
Both my coworker and I are in the (23-26) range. All my friends (new city, college, and home) all use Snap religiously. All of her friends use Instagram. I think it's just hit or miss depending on the groups. A lot of my friends use Instagram as well. However, not for the story aspect.
It's extremely clear that Facebook is setting itself up for an anti-trust action in the next few years. Their very aggressive leveraging of their near-monopoly in social to try to kill Snapchat, will be viewed in hindsight similar to Microsoft attacking Netscape with its OS position. If Facebook succeeds, it'll leave them with an overwhelming monopoly in social, there's no scenario under which they won't be pursued by the government thereafter. Plus, you can bet Snapchat and its investors will begin to howl loudly the harder Facebook presses.
Zuckerberg's lust for market domination, will unravel or stagnate his kingdom if he's not very careful. His behavior at this point is looking ever more Gates-like when it comes to trying to knock-off the competition while possessing a near-monopoly (you can do one or the other, but if you're a $400b company and you try to both kill all your competition while having such a position, good luck).
Millennials actually covers much more than that and someone who is 18 now would likely not even be considered a Millennial. If you parent was a baby boomer, then you are a Millennial.
Reminds me of Facebook IPO, a lot of people were claiming it will plunge and eventually go bankrupt. But companies with such big daily active audience that can be targeted with ads are here to stay.
Considering it went smoothly it doesn't remind me of Facebook's IPO at all. Twitter should be all the evidence you need of how hard it is to succeed selling advertising to a big audience. Snap might crush it, but I would give them a few earnings reports before comparing them to anyone.
No, it was a disaster that led to years of litigation. NASDAQ admitted it was their technical error and paid millions to settle lawsuits stemming from it.
This obsession by techies that you're leaving money on the table if your shares go up after an IPO is bizarre.
> This obsession by techies that you're leaving money on the table if your shares go up after an IPO is bizarre.
If the company gets $X/share at the beginning of the day, and bankers get $X * 1.5/share at the end of the day, that feels like a big donation to Wall Street. If I'm an investor, I'd rather the company have all the capital than 2/3rds of the capital as well. It feels like if a company would sell a portion of the offering through the traditional channels, and the remainder at market prices throughout the first couple days of trading, it might better capture investment.
It priced 2 or 3 billion dollars over the early valuation estimates (a few weeks before the $38 debut, the roadshow was floating $32 as the top number).
EDIT: I was wrong, that's just what they are selling today, not the total value of their shares. In which case, good for them!
It actually surprised me how little the founders got. Their shares are worth about $400M each. Certainly nothing to sneeze at, but usually when you're the cofounder of a 24 billion dollar company, you're a billionaire. :)
> According to Snap's latest S-1 filing with the SEC from Feb. 27, Spiegel and Murphy plan to sell 16 million shares each on Thursday. The company opened at $24, after it priced its public offering at $17 a share. It's just a small fraction of the number of shares the co-founders own in Snap Inc. Both men will still have 97,164,485 after Thursday's sale.
Oh I read the same article but I read it wrong. I thought they meant that would be the total value of the shares they hold after the IPO, not just what they are selling today. My bad.
Groupon was a totally different business. Network effect didn't really add anything or give them lock in. Customers and businesses would go wherever prices were lowest. It was always doomed, really.
>> But companies with such big daily active audience that can be targeted with ads are here to stay.
That's just it. Snapchat has very little targeting data, and targeting is a force multiplier for ads revenue. They don't even have explicit gender data.
Edit: Downvote all you want. They don't ask the users for gender. It's implied. See Twitter for a similar tactic.
How is that powerful? Any mobile app has geolocation data. How is that a market differentiator? That's like saying they have mobile OS targeting... So?
Few other apps that I'm aware of provide live advertisements for events happening nearby as part of your natural use of the app in a really noninvasive way, and provide incentive to share those advertisements.
Snapchat geofilters are non-invasive and will be seen in normal app use, but don't really bother you. They can inform you of events happening nearby or, if you're at an event, you can use the geofilter when snapping, which shows your friends that you endorse the event/product/whatever, in a totally transparent, opt-in way. That's super powerful.
Well the major difference between the two is that Facebook can engage grandma as well as junior. It has broad cross-generational appeal. The whole point of Snapchat is "mom and dad don't use it" which means they're beholden to the whims of a very young audience. Which I guess is good, since young people aren't known to move on to the next big thing at the drop of a hat.
> since young people aren't known to move on to the next big thing at the drop of a hat.
I'm assuming that was said with a whole lot of sarcasm? In my opinion, that will be the death of Snap - something else new and shiny will come along in a year or two and Snap will be a ghost town.
I'm not a banker so maybe I'm missing something, but I wouldn't be too happy if my company popped after the IPO. The way I see it, that just means that I left money on the table.
If anything, this increases my respect for Zuckerberg and team.
I'm not really excited about the prospect of bankers lining their favored clients' pockets with my money.
It's not uncommon to sell your personal shares in the IPO.
Even if you don't sell your own shares, selling 10% of the company at $5 billion (no pop) is strictly better than selling 10% of the company at $3 billion (assuming a 60% pop to $5 billion). The company has more money and you own the same portion of the company.
And yesterday on eBay, 22 pairs of Spectacles were sold, with one pair went for $229 and 2 others went for $200 each, even though http://www.spectacles.com has been offering them for $130 since last Monday -
A lot of the comments in this thread are missing the point. No one cares if you use Snapchat, no one cares if you like Snapchat. The question is how much market space can Snapchat occupy, and will their bets on new technology (VR, drones, etc) work out.
I wonder how much of this is investors with a good understanding of Snap's potential buying because they feel it's a good gamble versus stock market investors not having many opportunities to invest in tech startups because there's so few IPOs.
> I don't understand how the existence of [any company ever] adds over [their current valuation] of utility to the economy; furthermore, if [company] fell of the face of the earth, everyone would just switch to [their competitor], and life would resume ut fit. Peter Thiel's quote should be updated: We wanted flying cars, instead we got 1̶4̶0̶ ̶c̶h̶a̶r̶a̶c̶t̶e̶r̶s [trivialization of product's value].
These comments surface every time a company goes public. You may have some valuable information driving this viewpoint underneath, but from this comment it just sounds like useless trolling.
To me at least, Snap seems like a good company with cultish user-base. They have done a good job integrating ads and rich content (some paid content) into their core UX. A difficult feat which Twitter still hasn't solved to this day. They also have an interesting perspective on live events that even FB/Instagram has failed to replicate.
I had removed the last part from the comment as to seem less trollish, so please forgive me for coming across as such. Anyway, since you asked, here is my formalized argument:
(1) [falsifiable axiom] You cannot have meaningful economic growth without technological innovation. Technological innovation is improving the efficiency of existing resources or increasing the availability of resources as compared to previous eras (colloquially, "doing more with less").
(2) [falsifiable axiom] Historically, only the most valuable companies of a given era are technologically innovative.
(3) [falsifiable axiom] Under the current valuation, Snap Inc. is currently one of the most valuable companies.
(4) [falsifiable axiom] Snap Inc. is not technologically innovative.
(5) [logical conclusion given axioms] Snap Inc. should not be valued as one of the most valuable companies of this era.
Kids like it. Shouldn't that count for something? You might as well question why video games, or professional sports, or Hollywood, or any other form of commercial entertainment generates so much money.
Haha, that's exactly my point! I do question why the entertainment industry siphons so much capital away from other, more productive endeavors. Perhaps no one has any good ideas on how to create the future, so we might as well throw it all at beer and sports.
Furthermore, your comment is no defense of Snap Inc's valuation, either. In my humble opinion, "integrating ads and rich content into their core UX" and "an interesting perspective on live events" are not strong arguments for why a company should be worth $30B.
Personally, I wouldn't put too much "trust" in the market cap number. A lot of times at this stage, the investing is rather speculative. We will find out what the market really thinks in a few months.
I imagine people are probably buying the stock in the hopes that this is the next Facebook (which is now roughly 4x the initial day end trade price). There's also, however, the possibility that this might be the next Groupon IPO equivalent (initial market cap at the close: 16.5 billion; current market cap: 2.34 billion, about 20% of the initial opening day price). We'll see.
This is going to open the floodgates for so many smaller startups that have been waiting to IPO. 2017 is going to be an exciting year for anyone with equity.
Brand new 2.65M condo units next door to me in Santa Monica. One immediately sold and I expect the rest to go as soon as all these paper millionaires in the neighborhood turn real.
Venice has already turned into the most expensive rental market in LA [0] and it is dragging Santa Monica's prices up with it. I'm in a rent controlled apartment and I don't think I will move out of it at this rate unless I leave California entirely.
I would only look at this stock after the first year. Having followed some of the previous high profile IPOs, we will see what happens after their employees are able to dump stock after the first year.
This point was addressed on HN by user ChuckMcM in November 2013, right after Spiegel rejected Zuckerberg's buyout attempt:
> The focus here is on the tech and not the market. A pet rock was 'worthless' (the rock was just a rock) but the connection with a generation was valuable. So often in our business we look at something that we feel like we could build (or could be easily built) and a valuation, and focus on those two things. The parts we don't see we give little value to (350M snaps? Seriously? That is a boat load of engagement). Making anything that get 350M 13-23 yr olds engaged is a pretty huge deal. That is what is valuable with Snapchat, not the tech.
I think this will be worse. Snapchat isn't nearly as culturally sticky as Twitter. Sites like Twitter, Instagram, and Facebook have a robust friend/follower system, and users have a huge backlog of things they contributed to the platforms. No contributions on Snapchat last more than a single day, so what is motivating users to stay on the platform instead of using Facebook or Instagram's offerings? Their friends lists exist both of those places too. In 10 years we'll look back on Snapchat as a flash in the pan.
I think Snap has potential to be huge… anything that wins the race to replace TV is going to be big. Whether they can do it before FB clones them/leverages their network is a big open question.
That said, despite the fact that I love Twitter more than any other network, almost none of my friends use it maybe ~a dozen people I know closely in real life still post to it. Almost all of my friends use Snapchat and complain about my lack of engagement with it.
Anecdotal, but I don't think they are comparable… additionally if your (likely closer nit group of vs. FB's "everyone you know") friends aren't posting, brands are putting up a TON that people seem to really like.
Neither does anyone an hour watching TV anymore? Everyone within the age range 18-30 in the US definitely spends more time on Snapchat than TV right now.
It's interesting to compare the two IPOs. Twitter opened at $26 and closed at $44 at a valuation of $25bn. Twitter had $650M revenue in 2013 for EBITDA of -$525M. Snap closed at $28bn valuation, had $404M in revenue in 2016, and EBITDA of -$460M. Twitter had roughly 100M DAUs and 230M MAU whereas Snap has 150M DAU and over 300M MAU. Snap is also 2 years younger than Twitter was and the number of minutes spent on the platform per user is much higher.
What is the justification for celebrating the big jump in first day price? Why isn't it a condemnation of the banks who got SNAP to leave a lot of money on the table?
I wonder how much child pornography goes through snapchat. Given the demographics of their users, I'd bet it's quite a lot. Seems like a pretty major business risk.
You're incorrect, it's a near-zero business risk. The laws regarding how to deal with it are well developed at this point. Reddit, Imgur, Google, Facebook, Instagram, Viber, Kik, Gmail, Hotmail, Yahoo, Twitter etc - all have or have had a similar challenge in dealing with it in regards to scale, but in the case of Google or Facebook they're dealing with a drastically larger scale problem than Snapchat will ever see. All Snapchat has to do is follow the same laws that all the other hundreds of popular Internet companies do.
SNAP's real value lies in its future as an augmented reality company. They've spent something close to $1B in R&D - likely going toward hardware or something...
>Shares opened at $24 and traded as high as $25.42 apiece Thursday, giving the company a market valuation of about $29 billion
there is no way for me to look at that and not be dumbfounded. some companies are unprofitable but still have a clear mechanism through which they could make money. tesla sells cars, for example. twitter and snap on the other hand have no way to make enough money to justify the hype. they can sell peoples data -- and that is a form of revenue that may face massive backlash and cooling very soon. this market cap is insane and we are in a huge bubble.
Interesting. Bitcoin is trading at an all-time high today. I guess the fears of a tech bubble collapse have been staved off for a little while, at least.
Of course, but it still is a good idea to think critically about the possibility that tech companies are seriously overvalued. The chance of a bubble bursting in any given year are probably low, but that there will be a downturn is inevitable. And when that does happen I'll want to be paying attention so I can see it coming as far out as possible.
Interestingly enough, well atleast to someone who cares about the cash equity markets, the NYSE actually did a test run last week to try and simulate the chaos that occurs during any hot IPO.
So now we know that there is atleast some appetite for shares with no controlling interest and no indication of paying out a dividend any time soon. A current market cap of 30 Billion is a pretty darn big accomplishment!
Two big dates in the future to look out for.......
1) July 30 when the first lockup date is over. I'm not sure how many shares come off restriction.
2) May 15 when they do their first earnings report.
I'm interested to see if they try and make people view the company via GAAP accounting(PnL) or non GAAP measures like engagement, monthly users, etc.