“Excess inventory and related charges – In Q3 2017, we recorded $39.9 million of charges related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.“
What I find most interesting about this is directly from the first line of the company description in their S1:
"Snap is a camera company"[0]
Yet the one instance where they actually own and sell a camera (i.e. Spectacles) instead of leverage someone else's (i.e. smartphone) it's a massive failure.
One place that heuristic fails is for kids technology. Parents will buy almost anything that they think either benefits their kid or makes parenting easier.
I did. I saw them in a lot of places. I live near SNAP (I've seen a matte black Mazaratti in my neighborhood with the licenseplate SNPCHT, or something like that) so maybe that's why. But I only ever saw them at techie events like GDC and around Santa Monica where all the tech companies are.
I wonder if they examined analytics before jumping into Specs or whether they just ran with the idea because they thought it was cool? The vast majority of snapchat users I know of use it for selfies, not front facing images so it would seem like they ignored their own analytics and went for it because they thought it was really cool.
Are you speculating or have you seen this clearly? Personally, any way you frame it, it comes down to a lack of focus; failing to act before the lens of public opinion shifted.
Are you speculating or have you seen this clearly? Personally, any way you frame it, it comes down to a lack of focus; failing to act before the lens of public opinion shifted.
> Hosting costs per DAU were $0.68 in Q3 2017 as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
Those are staggering figures to me and the trend is equally surprising. Maybe it's ignorance about hosting costs at such a scale, but i feel like cost/DAU should be declining over time, right? Is there something i'm missing here?
That cost is definitely not bandwidth. Content delivery is around $0.005-0.01 per GB with an external provider. Less if yiu have the scale to do it in house. My guess is that the bulk of that spend is compute + storage/io.
Assuming half of it is bandwidth costs, that means that a daily active user is using ~380 MB/day (assuming $0.01/GB). That seems pretty hefty as an average. Especially if you consider the encoding snapchat uses puts each 10s video at about 1MB in size. 380MB is a little over an hour of snapchat quality video, that seems excessive as an average. If I were a major stockholder I'd be pushing to see why these hosting costs were so high.
I bet bandwidth is a large cost, but I bet compute is a big component too. Snapchat uses Google App Engine, an awesome platform but expensive (comparable to Heroku).
Regardless, my understanding is that Snap now gets some sort of flat rate deal from Google, so not sure how important the individual components are.
Could also be incompetence in regards to managing servers and load testing with laziness for not shutting down instances and ignorance of using reserved instances?
Hehe! You will be surprised how often this happens in best of the companies.
A large fintech startup I work with had 5 GPU servers lying around idle before the CTO realized that they only need them while training the Machine Learning models and not during inference stage.
Been there. Remember getting a call from a data center I'd never heard of asking to speak to the old sysadmin who'd quit 18 month ago. They asked something about the rack of servers we had in their data center, I replied "what rack? what data center?" Turns out that 2-3 years previous the old sysadmin had set up a dozen servers in their data center for some project (that I'd never heard of) that very shortly afterwards first got pushed forwards and then canceled. Everybody involved in that project promptly moved on to other things and no remembered to cancel the deal with the data center. So for two years we'd been paying quite a lot of money to keep a completely idle rack of pretty expensive servers and apparently no one noticed.
For every user with the app open, they have to constantly calculate new information too send out, not just snaps but ads and news content. It's not mining bitcoin, but not trivial. Probably a few dozen database reads/writes per user every minute.
Not OP, but my insight: Adult entertainers use Snapchat as a distribution channel for their own self-made videos. Some offer their Snapchat stories for free and try to up-sell you, others charge you for giving you access to their stories. Payment is through Patreon or PayPal or some other common payment platforms.
I'm not sure what "hosting costs" encompasses. But maybe this includes analytics costs? I assume they have far more ML and data collection infrastructure than before.
I'm puzzled by that - if it's $400m/yr then cost per user should go down as you have more but they seem to be reporting the opposite. ("Hosting costs per DAU were $0.68 in Q3 2017 as compared to $0.64 in Q3 2016")
Probably new features. The new 3D filters look like they could require more resources to serve (filters are not included in the app but rather downloaded dynamically iirc). Maybe they're rolling out more localized filters too.
Daily active users (DAU)(1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
That's good growth year-to-year, but not spectacular. Still, they aren't being completely killed by FB/Insta/WhatsApp
Average revenue per user (ARPU)(2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
That's really, really good news for them.
Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
That's surprising and should be somewhat disappointing. It makes me curious as to the reasons - I wonder if it was international growth where they didn't have good hosting deals or something?
thanks for digging into the details and analyzing results in a balanced way!
if DAUs increased, perhaps the average user also used snapchat more often, which would increase costs. this is pure speculation, of course, so please share if you discover the cause.
either way, hosting costs per DAU is an incomplete metric -- something like cost per minute (i.e., minutes in app or otherwise interacting with snap) would be a helpful supplement.
3% quarter over quarter growth on a product that is supposed to be still in growth mode is pretty bad. Compare this growth rate to Facebook's when it was was a 200 million DAU and it is not much at all.
Add in their enterprise value to revenue ratio and its a very sad story.
3% quarter over quarter growth on a product that is supposed to be still in growth mode is pretty bad. Compare this growth rate to Facebook's when it was was a 200 million DAU and it is not much at all.
Yes this is very true.
They have to find a new growth channel somehow. It's good news that their user base isn't being eroded by competition, but they need to try something different to grow.
Snap went from an incredible growth rate to a terrible growth rate because of a few simple (and sadly, quite common) strategic mistakes:
1. Underestimating the competition.
Evan Spiegel clearly believed that Zuckerberg would never figure out how to beat him. He seems to have concluded that he was smarter, more creative, and more agile than Zuck. He profoundly miscalculated Zuck's relentlessness and is now losing badly as a result.
Takeaway Lesson: Hubris kills.
2. Attacking a market where you have few/zero major advantages.
Evan seems to have concluded that the only scaleable way to monetize a social app is with digital advertising.
The problem?
With <10% of Facebook/Instagram's user base, a tiny fraction of Facebook's ad targeting data, and a set of ad products that were 4-5 years behind Facebooks, why would any advertiser ever dedicate more than their 1-5% "experimental" budget to Snapchat?
Answer: They wouldn't, and likely never will.
Takeaway lesson: Don't take a juggernaut head on. You will get crushed every time.
3. Misunderstanding your own advantages.
Snapchat originally took off because it offered an underserved segment of the market (young people) something Facebook and Instagram did not: a relatively safe, low-judgment place to express themselves.
By focusing on the advertising market (and inevitably turning to privacy-destroying data aggregators like Experian to buy ad targeting data on its users), Evan threw that away.
Takeaway lesson: Never lose sight of the needs and desires that led your users to choose you.
I think most people think of "Instagram Stories" when discussing how Facebook copied Snapchat, rather than Poke.
In a very short amount of time Facebook where able to clone one of Snapchat's signature features AND gain large numbers of new users in the process (as of March 2017 they reported Instagram stories having 200 million users per day, overtaking Snapchat in the process).
Facebook replicated Snapchat’s story feature in all three of its major brands: Facebook, Instagram and WhatsApp. Instagram is also relentless in adding new filters (filters people put on their face while recording themselves) and is Snapchat’s most fierce competitor from what I can tell.
As much as it pains me to say it, I stopped using Snapchat because my experience with Instagram Stories + Messaging in Instagram is simply better. Especially on Android.
The Snapchat Android app is completely garbage. :|
I am fascinated by Facebook. It is one of the most valuable companies in the world but if you took it away from me (and I would argue most people) tomorrow morning it would have almost no impact on our day to day lives. I actively use it and my girlfriend is obsessed with Instagram but if she didnt have it she would just go back to reading blogs on Tumblr or wherever. I would hate to live in a world without Google or its ecosystem of applications (like Maps) or a world without Microsoft Excel/PowerPoint but I believe a world without Facebook would look almost identical to the world we have today.
If you cut me off tomorrow of Facebook and Messeneger I would instantly loose contact to the majority of people I care about (except my wife and parents).
I would end up spending life on my couch watching Netflix instead of engaging in a rich social life I have now thanks to FB events, groups, Messeneger, etc.
And I guarantee you that’s true for a large amount of the user base! Otherwise they wouldn’t retain.
(Fake) news and cat videos are a very hyped topic...but it’s really only a small part of why people actually use FB
Adding passing acquaintances on Facebook has actually made them developing into real friends more likely by my anecdotal reckoning, as they're at the top of mind my when I see their updates and I remember to check in.
And my partner being friends with my mum on there has actually helped both out with subsequent interactions as they know more about their common ground.
Facebook, ultimately, is what you make it. There's loads of "racist uncles", "fake news", "Tasty videos" etc, but if you engage with the people, it's as powerful as ever.
Making new real friends as an adult in an entirely new place is really hard for many people in many places (including me), and hanging out with vague acquaintances doesn't hold much interest.
Totally agree that it's challenging to make new friends as an adult. I feel lucky if I make one new real friend every two years. But just cause it's hard doesn't make it impossible, and it's far more rewarding than internet-only friends... you can actually do things together, not just talk.
> Where are you living that you can't have face to face interactions on a regular basis.
Far from many of my friends and family? Many of them live in other states or countries, and Facebook is cheaper and usefully async when dealing with international calling rates and timezone differences, respectively. I'm not sure I understand your question.
Oh, I am old enough (40) to remember too...I am in fact old enough to know that I am much better of with FB in my life...minor annoyances asides (but no product is perfect in the end)
Nearly every aspect of my social life is planned on Facebook. It's the one place where nearly everyone I know are. Facebook, for me, is really just the best event planning tool in existence.
I'd also instantly lose contact with a bunch of acquaintances and friends. I've moved around quite a bit in my life and Facebook connects me with those people. When I travel it's the platform I use to reach out to the people I want to catch-up with. It'd be a real bummer to lose that.
It's true that the news feed aspect of Facebook is something I wouldn't miss. It's something I never use anymore, politics has taken care of that. But all of the features around it ARE things I deeply care about.
I use a browser extension to display:none; the news feed section. I still get notifications (if I want to click the badge) and can browse/search, but don't get random content shoved in my face. It works well for me.
I actually don't have phone numbers or email addresses for most of my friends. Without Messenger I wouldn't be able to communicate with them so that would be a huge disruption to me.
I could agree with you even more than what I already do.
My social life is on WhatsApp groups. No one in my social circle uses Facebook Messenger for anything relevant. The number of friends' photos has steadily gone down over the years. I've switched off FB but come back when am bored and want to spend time looking at cat photos and BuzzFeed. Facebook not existing in the world would impact me minimally.
Google, and even Microsoft, on the other hand, damn if they stopped existing... I'd be fairly distressed I suppose.
I mean. Facebook owns Whatsapp. And if you're not in a WhatsApp country, the US, Korea, Japan or China, you're in a Facebook Messenger country. They handle messaging for the vast majority of the western world.
The Facebook website itself is no longer particularly useful to me, other than that it is very good at events (both private and for public event discovery). The groups feature is also handy.
Other than with Facebook's messenger, your WhatsApp social graph is in your phones addressbook. If Facebook's WhatsApp service were to be gone tomorrow you could just install the next biggest messenger and beyond minor initial fragmentation all your friends would still be there.
This wouldn't work with the Facebook Messenger, since this social graph is not stored by the user.
> But it did not work with Snapchat and Evan Spiegel, who seems to have turned down Facebook’s $3,000,000,000 without hesitation or second thought.
I think it did work out pretty well for Evan Spiegel and Snap Inc., since they're trading at around $18B on the stock market despite lots of concerns around their business...
But what is Snap really worth? They don't have assets and don't make a product but rather provide a service. A service is only as valuable as the number of people who use it. If Facebook continues to steal users away from Snap at the current rate, it will go they way of myspace before long.
Very true, but just like bitcoin was once 5$ and now 5000$ nothing of substance is preventing it from returning to 5$ once again other than "investors" (more like speculators). As Rupert Murdoch learned the hard way, what was worth 580 Million in 2005 was worth $35 Million by 2011 once the users left.
Honestly, the best thing Snap can do to control their destiny is gut headcount by 2/3. If they bring their costs down so they aren't burning cash, they still have a highly engaged user base that is stable with decent advertising revenue. If they aren't burning cash like a wildfire, they can have some time to think strategically to build better user growth and engagement. Spiegel needs a strong COO like Sheryl Sandberg to put realistic controls on expenses.
As it stands now they are basically pulling a Twitter.
Interesting factoid: Snap's current market cap ($18.1B) is lower than the price Facebook paid for WhatsApp ($19B). Snap is now "only" worth $4B more than Twitter.
Does FB wait for the price to fall and take them out for $10B? Or grind them to dust to make an example of any startup foolhardy enough to forgo an acquisition offer?
First of all, what's your source on the claim that Snapchat are taking/recapturing users, is that proven by anyone or are you making assumptions? Secondly, your question why FB would want SNAP is kind of nonsensical when you consider that FB placed a $3B bid on Snapchat in 2013 -- demonstrably FB does want Snapchat, if nothing else they want them so that they go away.
Snap went beyond just retaining a majority of voting control with the founders. Due to the share structure, the two Snap founders control 88.5% of the voting rights. Their shares are worth 10x, and publicly traded shares are worth 0x.
Anyone with holdings in Snap who aren't named Evan Spiegel or Bobby Murphy have only one option: sell the stock and recoup whatever they can. That's what people are doing. Snap's share price will not substantially recover, and there won't be a return from an acquisition until the business completely runs out of money.
The thing that is killing them is not the hosting costs, it is the ARPU. They are getting like $1 ARPU per quarter while FB gets like $4-5. That is what they have to change.
They could try introducing some filters you have to pay for. It might be tough surviving the initial backlash due to people expecting them to be free but as long as they keep releasing some free ones they should survive. The other problem is their demographic is a bit younger so might not have that much disposable income but that didn't deter them from releasing glasses that cost >$100. I think parents would be more likely to pay $1.99 for a pack of 5 special filters for their child rather than getting the glasses.
IMO they really need to do a revenue share. Big influencers (think youtube style ad revenue) would make enough to move on to the platform. Smaller users would still get the occasional 5 bucks, enough to keep people interested. Yes they'd get spam, fraud, and all that good stuff. But honestly they need something different to facebook/instagram/whatever that's not some shitty hotdog
Oof, that is a staggering quarterly loss, how long will investors be willing to tolerate that when there are competitors active now in that industry, mainly instagram.
Well, I wouldn't be so sure. When SNAP had their first big miss a few quarters ago, I asked my 13-year-old (who I noticed hadn't been using Snapchat as much as he used to) about his usage. His response was that "Dad, no one uses Snapchat anymore!" (It's "all about insta", according to him.)
While it is certainly anecdotal, it also fits both the data (the declining growth and difficulties monetizing) and the general perception (that Instagram stories obviated Snapchat). But then again, if my son were a kingmaker, Funky Karts would be a unicorn -- so take this for what it is!
What kids? Kids with credit cards or kids where most purchases are made by parents and therefore hard to link back to ads shown on SnapChat?
I'm in my 30's and don't know too many people that use SnapChat... so when people say "young kids use SnapChat" I'm not sure if that means 13-18 year olds or 18-29 year olds or something.
Completely anecdotal but every time I go to 'youth' events. Music festivals, University Football games, concerts, the gym, these past Halloween parties, all I see are young people with Snapchat constantly running.
I'm 28 and only a few of my friends are heavy users but most people younger than me have accounts. I've met several girls who are weirded out that I don't have a snap.
Average revenue per user (ARPU) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
It's brands with credit cards and "kids" with eyeballs. It's a promotions/advertising play.
I'm 25 and many friends still use Snapchat. I think the trend is slowly moving to Instagram (which I prefer), but the usage with Snapchat still exists for sure.
It's looking like investors are interested to know what the real value of the stock is. There's still a large audience to monetize but you're right the competitive set is crazy.
I wonder if that is a setting you've switched on. When I go to that link it does not show after hours trading at all (it shows the price but not on the graph).
Very cool. I've used google finance for years and never knew that. I always assumed all you got wrt after hours stuff was the little "After hours" quote underneath the day's closing price.
Everybody talks about the advantages of immediate cashflow, while always ignoring these outcomes.
What did going public allow the company to do that it was unable to do prior to selling out? Did they just need the money to keep paying for bandwidth? Because that's the essence of the 1990s dot com game, with private venture capital being replaced by wall street investment firms.
Unreasonable demands for 'projected growth' is what always kills companies who otherwise, would be maintaining just fine.
I dunno there's something to be said about becoming a real company with reporting deadlines instead of living perpetually in private valuation fantasy land.
"Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering."
I believe the vast majority of that was due to issuing stock to Evan Spiegel for successfully executing the IPO at given metrics.
Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering.
> The idea that money given to employees as equity is not "real money" is toxic.
Equity is not money, and employee-owned equity often isn't easy to convert to money, especially in non-public firms (but even in public firms, employees are often bound by insider-trading rules.)
Of course, costs associated with equity-based compensation are real costs to the firm, independent of the fact that equity is not money.
I'm not the person who wrote that but I think you're misinterpreting the statement.
I believe user addicted was trying to say is that companies are attempting to treat a large portion of compensation paid out to employees as somehow not material or meaningful, and that practice is toxic.
They are obviously not the same thing (as the comment about trying to pay rent, for example, tries to point out). But at the same time, a lot of companies try to pass them off as not meaningful which I don't think is helpful even if toxic may be too strong a term. (SNAP's figures do that literally, giving us NM for change % numbees affected by the stock compensation).
$443m loss in one quarter is quite a lot. There seem large increases in R&D and sales and marketing expenses. Guess they are having to work hard to keep user numbers growing.
Can anyone explain to me what a Negative Accumulated Deficit means in a liability account?
As I understand it an Accumulated Deficit is the opposite of retained earning so a loss. But losses are positive values in liability accounts so we should invert it again and get back to an Accumulated Deficit. But instead of SnapChat adding this amount to their liabilities they're using it to reduce their it to reduce their equity.
- For every $6 they spent, they got back $1 in revenue.
- The product is an app which is free to use.
- A large chunk of their system runs on Google App Engine; which is probably the most expensive and highest lock-in infrastructure solution that you could possibly use.
- The CEO, who was basically fresh out of university, turned down a $4 Billion offer buy the company.
So basically; they're a company which loses money at an incredible rate on a product which is nearly impossible to monetise and with an inexperienced and irrational person as a CEO. I'm surprised it still exists tbh.
No sane rational person can look at those numbers and think that it's a good investment.
They're already in Google Cloud. One could argue that's preventing them from keeping costs low. Google Cloud is tremendously expensive in op-ex at Snap's scale. You're paying Google instead of having a good ops team(s).
Dropbox did the math and found they could do better on their own. Only time will tell who is right.
I use Google Cloud. Love it's simplicity and design.
It's definitely cheaper on the lower to even medium end. But once you're spending six figures per month, it's probably only ~10% cheaper than buying the equipment and hiring three people to manage it. Not sure why anyone would be on Google Cloud (or any cloud really) and spend 7 figures a month, unless you got a sweet deal from them.
This is the first I've heard that Google Cloud is cheaper than doing it yourself. All of the conversations I've had (and some pricing I've seen) say otherwise. Do they actually give 85% discounts, because that's what it would take to make Google Cloud equal to the cost of running my business.
It's not for everyone, but I don't think you're including the cost of employing someone to manage the hardware. If you're a scrappy startup that is willing to do whatever it takes to keep costs down, or a giant company that already has an in-house hardware team, then it's more expensive.
I'll also add that they've come quite a way making it more modular. It's clear GAE will eventually become more a collection of parts rather than a locked-in stack.
You can already run GAE in a Docker container using app engine flexible.
The ceo got almost 4 billion taking the company public and he still controls his baby. I think he’s made some mistakes but keeping his company isn’t one of them.
Assuming they meant irrational because no rational person could turn down 4bn offer as they stated. My belief is that is a very shallow way to judge one's rationality.
I'm usually quite bullish on Snap. They seem to be doing some things right. From the outside, they seem overstaffed so it's good to see them reducing headcount. The fact that they're rebuilding the android app completely sounds like a bad idea that will be a bit of a timesink.
Nope. Snapchat is almost unusable on Android right now.
Compared to instagram's stories, which loads up in an instant, Snapchat takes its own sweet time. They made the mistake of not paying enough attention to android in the beginning. And now they are trying to fix their mistake. It is a timesink; but they brought it upon themselves.
Ditto. They did a big upgrade a few months (years?) back and yet my Nexus 6P takes literally 10+ seconds before Snapchat responds to touches. It's horrendous
Snapchat needs to cut 60% of their workforce and then relentlessly focus on the iOS platform. Make a better spectacles and make it work only on iPhone. Let the Android app languish. This is the only way to long term success. This way they maintain exclusivity and also able to polish the app much better. For example the shit transferring experience on spectacles can be easily fixed if they optimise it for iPhone. And then the people who bought it may have actually liked it a bit.
Although it may not be a roaring success, I believe FaceTime is at least fairly successful. It also works really well in my experience, and on the desktop is far more efficient for 1-1 calls than Hangouts in the browser which spins up my MBP's fans.
FaceTime is a huge value add to the iOS ecosystem. It's extremely reliable, crystal clear quality, and incredibly easy to use. I know so many people who get their grandparents iPads exclusively to use with FaceTime.
That's your opinion from your vantage point. How do you know iOS is most profitable? For all we know, most of their users, or maybe most of their growth potential could be on Android. Lets not forget international markets run mostly Android.
Looks like spectacles was a failure.