
Snap’s Rise and Fall: How a Big, Splashy IPO Prompted the Doubters to Keep Mum - JumpCrisscross
https://www.wsj.com/articles/snaps-rise-and-fall-how-a-big-splashy-ipo-prompted-the-doubters-to-keep-mum-1510249164
======
exogeny
Snap suffers from a fundamental paradox, one that is difficult for me to
imagine an easy way to solve.

They've made their bones by being a uniquely fun and social way of a certain
subset of the population to share their lives without parents dipping their
head in and seeing what they're doing, ala Facebook. The UI is designed to
generally support this; it is confusing and messy and understandable only by
someone who is innately familiar with the app, or unfamiliar with the general
conventions of UX.

But what happens when that user base isn't big enough and you have to expand?
What happens when you need to figure out how to sell ads in an environment
when you have next to no demographic information to target against? You'd have
to fundamentally change the business: algorithmic timelines, a more sensible
UI, more chipping away at the anonymity - all of which will turn off their
core users in droves.

~~~
noncoml
> how to sell ads

Why are we so obsessed with the ads model. Why not start charging?

This is not a web app, where you have to take out your wallet and enter your
CC info; all it takes is the scan of your fingerprint. I am sure people
wouldn't mind paying a certain amount per year to keep using the app without
creepy apps.

Sure, the revenue will be capped by the amount per year a user is willing to
pay, but maybe the days of the fat cows are over?

~~~
wpietri
> Why are we so obsessed with the ads model. Why not start charging?

Short answer: Metcalfe's law. "Metcalfe's law states that the value of a
telecommunications network is proportional to the square of the number of
connected users of the system (n2)." [1]

Social networks are valuable to the extent that the people you want to talk to
are on it. Charging raises a huge barrier to entry, making it very hard to
create a large network.

They could try charging by usage, as with SMS, but that's hard when key
competitors are free. They could also try charging for premium features, but
that could hurt user growth and it's tricky to find the right basket of
features that will really get people to pay.

[1]
[https://en.wikipedia.org/wiki/Metcalfe's_law](https://en.wikipedia.org/wiki/Metcalfe's_law)

~~~
runeks
> Charging raises a huge barrier to entry, making it very hard to create a
> large network.

Is this because digital payments are cumbersome, or are people really
unwilling to drop 50 cents/mo on something they find valuable?

Imagine getting 3 months of Snap usage for free, and having the ability to
make a 50 cent payment as easy as dropping two quarters in a tip jar. Would
this still be a huge barrier to entry?

~~~
selectodude
There is not a chance in hell I would pay to put a photo on Snapchat, and I’m
of their core demographic that can actually afford to.

~~~
noncoml
Would you pay $1 a month to not see ads and not have your data be sent to
third party companies?

~~~
wpietri
That's not really a winning value proposition. The first part won't resonate
broadly; the bulk of America is perfectly comfortable seeing ads. And the
second part raises a question they desperately don't want to raise: what are
big companies doing with all that personal data?

------
cft
That means that FB was probably the last "web" or "app" big IPO. Now it's
Amazon, Google or Facebook. Even Yelp is withering. Just like it has been
impossible to start a new car or airliner manufacturer since the 1920s (except
for Tesla), the opportunity for creating new large web companies has been shut
by the entrenched trio.

~~~
adventured
You're radically exaggerating.

Yelp? I don't see how that's a particularly good example. Priceline is 27
times their size in market cap.

Let's examine that withering though. Yelp sales by year:

2014: $377 million

2015: $549 million

2016: $713 million

2017: likely ~$850 million

Is that massive growth what qualifies as withering these days?

How about Zillow? Tracking to $1 billion in sales, growing very nicely still.
Expedia also has a very good business, they just printed a huge quarter ($481m
in operating income).

How about Uber and Airbnb? $100 billion in market cap, both fast growing
businesses.

Netflix, $83 billion market cap, 100 million paying subscribers, still growing
nicely.

How about Spotify? Over 60 million subscribers. Beating Apple, Amazon, Pandora
and Google at streaming music.

How about Pinterest? They've just begun the process of making money with their
platform. Things are looking just fine for them. Neither Facebook nor Google
have been able to harm them in any meaningful way.

Since we're talking about Google and Amazon, let's switch gears into payments.

PayPal is a monster.

Stripe and Square are killing it.

How about in code, given we're talking about Google. Github? Google is a non-
issue. Stackoverflow? No threats on the horizon, they have a serious, viable
long-term business.

eBay and Craigslist are doing just fine. Amazon hasn't so much as dented
either of them. eBay is printing $2 billion annually in net income and has an
extremely healthy business. Even lowly Groupon is planning to stick around,
they're doing $3b in sales and are now break-even.

Shopify is also killing it right now. $10 billion market cap, with a business
that has grown by ~5 fold in four years (72% sales growth in their most recent
quarter).

Then we get into dozens of other major web businesses, like LegalZoom,
Coinbase, Redfin, DraftKings, GoDaddy, Shutterstock, Automattic, SoFi, Houzz,
Lyft, Slack, Dropbox, Etsy, GrubHub, Credit Karma, SurveyMonkey, Reddit,
Shutterfly and so on.

And that's while ignoring the vast array of major cloud businesses and
enterprise companies, many of which compete with Google and Amazon (or will
soon). Companies like Oracle, Microsoft, Cloudflare, Akamai, Digital Ocean and
dozens more.

~~~
sjg007
Some of your examples are private companies so saying uber and Airbnb have a
100 billion dollar market cap is misleading. Private valuation is one thing
and may be equivalent at IPO but is not a market cap and they don’t disclose
revenues.

------
KaoruAoiShiho
I just went long on snap after saying for years it's a shitty facebook and if
you like social media or online ads then you should just invest in facebook.
The latest conference call was very enlightening in that it showed me how much
snapchat was doing wrong and what they can do to fix it. I think there's a
real opportunity here. It's one thing if snap just _can 't_ outcompete
facebook, and a whole other thing if the problem is simply snap's simple and
easily fixable mistakes. I believe it's the latter and I think snap will at
least 2x in 2 years.

~~~
exogeny
I wish you well on your speculation.

I didn't dig into the financials all that much, or even listen to call so I'm
approaching this from a place of ignorance, but I do happen to have five or
six family members between the ages of 13 and 18 and all of them have
unanimously reported to me that Snapchat is unequivocally over.

That's as anecdotal as it gets, but I'm also hard pressed to believe that
they're all simultaneously unique. And as we've seen elsewhere in tech, once
the "cool" vibe is gone (Yahoo, AOL, etc.), it's a long spiral to irrelevance.

~~~
trts
I can't count the number of times I've heard from people very plugged into the
industry declare that the FB exodus was underway.

If you read Hacker News and Reddit, it's obvious that Facebook is about to
die. People are put off by its privacy issues, its outlandishly aggressive
efforts to keep you clicking, and its culpability in tilting information and
elections to shady actors.

But I'd probably make a bet than they'll reach 3bn before long.

~~~
username223
3bn what? I still "use" it in some sense, but I mostly publish auto-syndicated
stuff, and read via mbasic, which uses no JavaScript and limits their
surveillance. Of course I never load their "like" buttons. My parents found it
useless and stopped using it; my kids can't be bothered. How much is Myspace
2.0 worth?

~~~
traek
3 billion monthly active users. They hit 2 billion this summer [1].

[1]
[https://www.theverge.com/2017/6/27/15880494/facebook-2-billi...](https://www.theverge.com/2017/6/27/15880494/facebook-2-billion-
monthly-users-announced)

~~~
username223
> 3 billion monthly active users.

I was trying to suggest that a lot of those "users" are not sources of
income/data. I'll bet a lot of them are either bots, or humans smart enough to
use an ad blocker. And most of the MAU humans are probably in a 10-year age
range, having signed up when FB was useful.

~~~
maherbeg
I would disagree again here. Significant numbers of their users use their apps
only/majority of the time. Can't block ads on closed platforms!

------
anindha
It took Facebook and Google a while to nail their advertising strategies. FB
shares dropped down from an IPO price of $38 to less than $20 at one point.

Its a very competitive climate and Snapchat needs to keep innovating, but I
wouldn't write Snapchat off too early.

~~~
dna_polymerase
I remember the analysts opinion on Facebook pre-IPO. Virtually no revenue. One
year later Facebook presented their first gains. While I was sure Facebook
would be able to do it back then, I don't see it with Snap.

They could profit from Snapcash though. How about integrating some Patreon-
esque function where you can unlock private feeds by payment/subscription? For
some art-forms that could really work out well.

~~~
kss238
"art-forms"

------
JumpCrisscross
Two bits which caught my attention:

"[Evan Spiegel] has dismissed ideas that rely heavily on data, according to
people who have worked with him. He prefers to study the experience of users
for cues on revisions and new features, some of the people said.

...

One banker involved in the IPO said he thought the lack of voting shares and
other decisions could imperil the company’s standing with investors, possibly
hurting its stock price. But he said he didn’t articulate that to Snap’s
executives for fear of jeopardizing his spot on the prized deal."

~~~
roymurdock
Matt Levine had a good take on the second point (as always): an underwriter
used to lend its name and authority to an IPO as a gatekeeper, back when IPOs
were rarer. Now they will sign onto just about any deal, and while they still
do some due diligence, it means very little to investors that Morgan Stanley
or UBS is underwriting.

“Nobody bought Snap because of Morgan Stanley's imprimatur. In this world, the
underwriters are mostly just service providers. Certainly they have due-
diligence obligations -- they really aren't supposed to take companies public
if their financials are fraudulent -- but they don't have much leverage to
insist on things like voting stock or forward-looking earnings guidance. The
market decides stuff like that, not the underwriters. The underwriters just
shut up and execute.”

~~~
iaw
Underwriting by investment banks feels less like underwriting and more like
arbitraging the fear of missing out.

------
yusee
Snapchat is a tabloid. The professionally made content is pure trash. I have
Snap opened right now. Here is the top 5 pieces of Featured content it shows
to me, a 25-yo male:

1) DailyMail: "Khloe [Kardashian] shocks with new FACE". 2) BROTHER: "Do You
Actually Know The Right Way To Eat THIS?" (pictures of pizza) 3) FRIYAY:
"Watch This to Start Your Weekend" 4) MTV: "These Rapper Names are SO Cringey"
5) NOW THIS: "CAUGHT ON TAPE: Drunk driver tries to trick police"

If Snap can corner the tabloid market, it could be a profitable business one
day. But Facebook is on another level. Facebook has the low brow covered, but
it also aggregates news. Indeed, Facebook's news sharing is so important that
Facebook is a propaganda platform. Nothing on Snapchat matters. Spiegel seems
to be a Steve Jobs devotee. The Jobs I imagine rolls in his grave every time
he's compared to purveyors of digital junk-food and softcore porn.

~~~
godzillabrennus
Jobs ego was so large he’d probably love people aspiring to be like him
regardless of how idiotic their business model actually is.

------
aphextron
I think Snap is doing the best pure "Social Media" experience of any service
right now. Whether or not that can really be monetized without becoming
another Facebook is a different story.

~~~
hi5eyes
except snapchat has been effectively locking out and leading on android users.
they're making a whole new app just to get some android users back because
instagram is absolutely murdering them

~~~
mrtksn
what's wrong with the current android app?

~~~
maaaats
Quality of the pictures. It basically takes a screenshot of the camera
preview, instead of actually taking a picture. Also often bugs, laggy
interface etc., which is bad when you have one attempt to view a picture or
message..

------
doublerebel
I still think Snap is a good long play because so far they are the only social
network to "get" Augmented Reality. Google has already had multiple AR
missteps (Glass, Tango, Pokemon Go via Niantic), Facebook is playing AR
copycat, Microsoft's AR is targeting big industry.

Snap's entertainment experience puts the viewer in the center of the action,
similar to VR 360° experiences and Spectacles is a direct expression of that
understanding. Snap's AR advertising (sponsored filters) has been an
overwhelming success. I don't think a real competitor has emerged for Snap
yet, as long as they stay the course.

~~~
rm999
First, that's a feature, not a product.

Second, there's no barrier to entry there. Facebook's ~10000 engineers can
recreate features with amazing swiftness, do it better than the first movers,
then spread the feature quickly through its 1 billion+ user social network. If
Facebook wants to beat snapchat at the AR game, they will do it when they feel
like it.

[https://techcrunch.com/2017/04/13/instagram-stories-
bigger-t...](https://techcrunch.com/2017/04/13/instagram-stories-bigger-than-
snapchat/)

~~~
yalph
You mean like how Google+ replaced FB?

~~~
_nedR
Thats a product, not a feature.

------
raiyu
Looking at their most recent quarter (Q3) growth has slowed down to 80% YoY.

YTD revenue: $538MM

Q4 should be their best quarter but look at last year we see that Q3 was
$128MM, followed by $165MM in Q4 and then $149MM in Q1. Using Q3 as a proxy
with $208MM that would imply around $265–270MM in Q4.

Taking even the higher range at $270MM that would mean full 2017 year revenue:
$808MM

With revenue growth slowing, user acquisition slowing, and monetization on a
per user basis only increasing around 15–20% per quarter that would imply a
difficult and challenging 2018.

Most likely full year revenue growth will be around 60% on the high end
implying:

2018 full year revenue: $1,292MM

Keep in mind that losses are also growing this entire period so they are
treading into Twitter territory of slowing growth and increasing costs.

Taking an 8x revenue multiple on next year’s revenue that would imply a value
of: $10.3B today.

However, by Q1 2018 earnings reality will set in. Either Snap will be able to
reinvigorate their growth, or with full year 2018 revenue projections it will
be quite clear that people are continuing to pay a significant premium for
future revenue that is quite possibly 2–4 years ahead of where the company is
today.

What's important to understand is that Facebook as a platform is designed for
advertising. It's an entertainment platform, people are wasting time so ads
fill into that gap nicely and FB has been tweaking everything from how your
news feed operates to forcing brands to pay to reach their followers all
geared towards increasing revenue.

Twitter is also a good platform for advertising but again look at the
frequency of ads that you see, notice that they don't charge to reach
followers, and so forth.

Snap is in a worse position because primarily it's a messaging platform which
doesn't lend itself well to ads and video ads always under perform because
there isn't as much of a driver to interact like click through text or visual
ads.

Snap will not get their growth rate next year will decrease, the only question
is how much.

------
ChuckMcM
Basically greed was in the driver's seat.

EDIT: From the article:

 _Stock-underwriting activity was in the doldrums in 2016— money raised by
U.S. IPOs was the lowest since 2003, according to Dealogic—and banks were
hungry for fees._

And goes on to describe how they set aside all of the signs that underwriting
the offering was a bad deal. (Well good for them, they would make money
regardless but the retail investors would not get a clear picture of the
challenges in SNAP's business model until it was too late.

This was exactly the sort of activity that defrauded retail investors in the
dot com bust. "What do you mean they don't have a business model? Look here,
Morgan Stanley is underwriting their offering, don't you trust these guys to
know what they are doing?"

------
LiweiZ
I only used SnapChat a few times. From what I saw, it is a virtual message
channel to make funny/silly face style communication with others, which is
what many 10-19 yo need. And I actually did a simple analysis to explore some
fundamental needs for that age group based on where their activities happens.
And the communication method SnapChat and similar services offer fit what they
want perfectly when being used as a massager. As long as they can hold that
ground tight, they still have chances.

Also, Tencent just acquired some portion of SnapChat's equities. It has very
strong and long track record and experience to make a lot of money from that
age group, though in a different culture settings. It might be a 50/50 bet.
Unfortunately, I'm too poor to buy in their stocks now and bet on the mid
term.

------
hkmurakami
This just reminds me of the whole ratings agency misalignment of incentives
during the financial crisis.

~~~
rhizome
See also the appraisal industry's role in the real estate crash.

------
nojvek
Or the CEO shouldn't make douchebag strategies that he only wants to expand in
Rich contries and not poor countries like India.

[https://www.google.com/amp/s/m.economictimes.com/small-
biz/s...](https://www.google.com/amp/s/m.economictimes.com/small-
biz/startups/snapchat-ceo-says-india-too-poor-to-consider-
expansion/amp_articleshow/58194373.cms)

After this came out, all my Indian friends around the world instantly
boycotted snapchat and moved to whatsapp

In a way I'm glad snapchat is suffering. The CEO has done a number of
cringeworthy things.

~~~
tim333
It's debatable that he did. Politifact rated it "mostly false."

------
code4tee
People need to separate the product from the company. The product may be
great, hot with the kids, whatever but at the end of the day Snap is a
business.

Snap the company is in terrible shape and poorly run. Their last financials
were, in a word, horrifying.

------
stevenj
I think Snap is an interesting company. I'm very curious to see where it'll be
in 3-5 years.

I wonder if kids not yet on Snap (because they're too young), will go directly
to Instagram for its stories feature in addition to pictures, etc., or if
it'll still acquire those future social media users. I think it's unlikely to
grab many new adult users who are only now getting into social media.

If I were the head of Snap, I'd scrap the spectacles operation and spend time
thinking about, and experimenting with, the future of media and social media.

Perhaps there's an iPhone-like opportunity.

I also think it needs to make its product way faster and more intuitive to
use.

~~~
deftturtle
Snapchat is very confusing and poorly designed. 100% agree with you on the
intuition part.

But I don't think spectacles really has much influence on future of company;
that is, Snapchat will fail or succeed for other reasons entirely. It might
look expensive on paper, but the glasses project is more of a marketing stunt
than a mass market product. If people don't want to use Snapchat, they won't
use a device that is designed for it. So problems with the platform will make
people not buy them.

The app is being copied by others, and their app also is getting worse. More
features, more bugs, more ads. People promote their image and show off
happiness and wealth on their stories. It has all of the negative experiences
of other social networks, and it's got the sexual harassment aspect, too. Many
many female friends of mine receive unwanted dick pics.

It's easy to see why they're struggling to grow. My first impression was that
it was a messaging solution. Then it morphed into a social network, and some
people expect to add you as a friend as casually as they would on Facebook.

In my opinion, Snapchat was more intimate and not something you just add
everyone.

As a result of people adding hundreds of low-intimacy relationships to an app
that was intended to be a 1-to-1 messaging solution, they are becoming
disenchanted with the novelty. It's no longer fun to use Snapchat like it used
to be.

Looking back, if paying $5 for the app would have kept Snapchat from doing
their media stuff and led to making it a secure, encrypted platform, I
would've gladly bought it. Just sad that it's become Facebook.

~~~
tinbucket

        > and it's got the sexual harassment aspect,
        > too. Many many female friends of
        > mine receive unwanted dick pics.
    

Same here. If I was in charge of Snapchat I'd be working on some way of
automatically identifying and killing those images in-flight, and banning
people who sent them repeatedly.

~~~
str33t_punk
But many use Snapchat for legitimate non-harassment sexting. What you would
need to do is combine this with a reporting feature. That way those using
Snapchat for it's originally purpose don't get banned along with the unwanted
dick-pic-sender crowd

------
farazbabar
Snap is extremely valuable, it has the customers everyone wants - it simply
doesn't know how to monetize them. Give it time, if someone like me can figure
out how to monetize this user base, I am sure, snap can, in time.

~~~
yalph
So you figured out how to monetize?

~~~
farazbabar
Yes and its not ads.

~~~
kakaorka
Do you mind sharing what it is?

------
klondike_
I think SNAP could benefit from being a content creation hub like YouTube.
It's great for spontaneous content creation, even more than Instagram, and a
ton of people already use it for that purpose.

Right now the app is mostly messenger focused. People with interesting,
creative snap stories aren't advertised at all.

Snapchat could accomplish this with a "discovery" feature that shows snap
stories a user might be interested in. It would also get users spending more
time in the app and watching more ads.

------
eyeareque
Despite what other people think Snap suffers from, I see their stock as a
great investment. It has the ability to gain quite well over the short term,
regardless on how they turn out in the long term. Also, there is no denying
they have a good grasp on the younger generation who doesn’t like fb or
Instagram.

------
RandomInteger4
Snapchat always seemed like a one trick pony that anyone could easily
replicate, which Instagram went and did. Not sure how this wasn't obvious to
people.

~~~
mizzao
Obvious in the way that Paypal, Square, Instacart, Dropbox and many other
companies were obvious. You could have started any of those, right?

------
gaius
No no no. Doubters kept quiet because watching a unicorn stumble would be
_funny_. Same with MongoDB, the Snap Spectacles of databases.

~~~
kurusii
Funny you mention that. I saw a sticker that said "MongoDB: Snapchat for
databases:"

[https://pbs.twimg.com/media/CWhO2jIUYAAbuiK.png](https://pbs.twimg.com/media/CWhO2jIUYAAbuiK.png)

------
bitL
The moment Snap started talking about "enterprise version" of their app, they
were zombified by their investors.

------
misiti3780
non-paywall: [http://archive.is/mWVgE](http://archive.is/mWVgE)

~~~
ChuckMcM
And a Blendle link: [https://blendle.com/i/the-wall-street-journal/snaps-
splashy-...](https://blendle.com/i/the-wall-street-journal/snaps-splashy-ipo-
stifled-its-doubters/bnl-
wallstreetjournal840-20171110-1_5?sharer=eyJ2ZXJzaW9uIjoiMSIsInVpZCI6ImNodWNrbWNtYW5pcyIsIml0ZW1faWQiOiJibmwtd2FsbHN0cmVldGpvdXJuYWw4NDAtMjAxNzExMTAtMV81In0%3D)

------
systematical
It's the dumbest app ever. The UI blows.

------
bsamuels
so whats the latest way of getting past the paywall?

~~~
disgruntledphd2
Search the article's name on Facebook.

------
anothertraveler
I thought the sunglasses would've been a nice transition into a larger AR
play, but they fumbled...and had no plan for how to compete having a product
that is otherwise easy for other social networks with a larger userbase to
copy.

