
Snap Inc. Reports First Quarter 2017 Results - wferrell
https://investor.snap.com/news-releases/2017/05-10-2017-210059250
======
chollida1
Some quick highlights as to why the stock is being punished.

> Adjusted Ebitda Loss $188.2M, Est. Loss $176.9M

> 1Q Daily Active Users 166M, Est. 168M

> 1Q Rev. $149.6M, Est. $158.6M

> 1Q Loss/Shr $2.31

I'm guessing the big issue is the miss on Daily active users. This is the same
thing that caused the street ot hammer twitter.

Rule of thumb for non profitable tech companies....

If you are a company that isn't making a profit and you continually preach
look at the users, look at the users. and then fail to even hit your target on
that, you're going to get punished.....heavily.

Or put another way, you can either make a profit or make your non GAAP
numbers, but you have to atleast hit one of the two.

One other issue from the Bloomberg momentary....

> A very key number here is revenue per user. Snap's results today are
> indicating average revenue per user at 90 cents. This is down from $1.05
> (14%) from what it reported for Q4 2016, before its IPO.

To be completely fair, SNAP management wanted full control to build for the
long term and Facebook was down 12% after their first earnings report and
Twitter was down 24% so it might just be that its painful for rookie CEOs to
manage a public company.

Too bad for employees that this comes before the lock up period ends.

 __EDIT __

Just on the earnings call, they said they don 't break out Spectical's numbers
but the revenue it generated was about $8 Million.

~~~
thedarkginger
Sluggish user growth probably doesn't look much better when Facebook's overt
effort to clone their product seems to be working.

Instagram Stories alone already outpaces Snap 200M to 166M. Looks like an
uphill battle from here.

[http://www.thefader.com/2017/04/14/instagram-stories-more-
po...](http://www.thefader.com/2017/04/14/instagram-stories-more-popular-
snapchat)

~~~
EGreg
Just out of curiosity, what kinds of things can a startup do to avoid being
copied and killed out of the gate by Facebook? Poison pill? Patent?

~~~
majani
I'll indulge. When Facebook seriously have you in their sights, financially,
the smart move is what Snap did: rush for IPO before your numbers start
getting affected. Product-wise it appears that if Facebook make a billion
dollar offer, accepting it is a wise choice to maximise usage growth and
interaction.

~~~
skinnymuch
Isn't it better for everyone who's a part of Snapchat or a pre-IPO investor
that they didn't allow FB to buy them for $3B? Even if Snapchat goes to a $10B
valuation (which likely won't happen this year) and stays around there,
that'll still be worth it for almost everyone. Since a lot of insiders will
have already taken some money out before then as well.

------
themgt
I almost wonder if there's going to be a "liked it before it was cool" paradox
to a lot of these social sharing startups dreams of continued user growth and
eventual profitability. Facebook seems to have reached escape velocity as a
quasi public utility, a ubiquitous enough communication medium that almost
everyone is peer pressured into using it even though they increasing dislike
it.

But the other social sharing platforms then become escape hatches for the cool
kids to hang out and share stuff in more authentic/novel/exclusive
communities, fueling a few to rocket growth and unicorn valuations. But like
that indie band you discovered that's now playing on the radio every damn day,
the bigger it gets the more the early adopters will move on to something else.
And especially in a situation where your primary market is teenagers, there's
nothing less cool than what was cool 5 years ago.

~~~
ctw
I get your point but that seems like a bad example to me. If the startup is
the local indie band that makes it big then yeah, maybe they lose the trendy
first users, but presumably they "made it" and are far more profitable by
staying on the radio, even if they lose the few original fans.

------
theprop
This is one of the ugliest financial statements I've ever seen. The multi-
billion dollar loss is due mostly to stock compensation, but still their COGS
or cost of revenues sold was greater than their revenues. That's probably the
first time that's been seen for a sizable software company in the history of
the industry.

They said their revenue per DAU is $.90 and their server costs per DAU were
$.60...so that means server costs were around $100mn while total COGS were
$160 mn. So what was that other $60 mn spent on? Admins? But I thought they
used the Google App Engine infrastructure to avoid any server admins and such.

Their revenues are exploding with their revenue up nearly 400% from last year,
but were below estimates as was user growth which are probably causing the
current stock price drop.

~~~
us0r
"server costs" (Google Cloud) is an affordable $450 million per year
commitment.

They apparently have 2,360 employees doing who knows what (not growing the
user base).

My favorite part:

"Spiegel laughed out loud when asked if he was worried about Facebook copying
his features. “Just because Yahoo has a search box doesn’t mean they’re
Google.""

We'll check back in a year to see if he feels the same way.

~~~
sorenjan
> They apparently have 2,360 employees doing who knows what (not growing the
> user base).

I don't understand what all these people do all day. Same with Twitter, they
have 3860 employees according to their website. It seems like 10X as many as
needed. I've worked in a few offices with less than 100 employees total, and
while I have no idea what it takes to run a service with that much traffic,
Snapchat runs on Google's cloud service.

> “Just because Yahoo has a search box doesn’t mean they’re Google.""

Maybe it will be a classic in the same genre as Ballmers answer to what he
thought about Apple's new product the iPhone.

~~~
ithinkinstereo
A large % of that number is in sales.

Unfortunately B2B sales is still very much people driven. Lots of calls,
emails, meetings x 10 until you close.

------
ithinkinstereo
User growth is plummeting:

Q4'15 - 13.8%

Q1'16 - 14%

Q2'16 - 17.2%

Q3'16 - 7%

Q4'16 - 3.2%

Instagram Stories launched Q3'16\. Going forward, growth is going to be flat,
maybe even negative, now that every messenger service now has their own
Stories clone.

~~~
winslow
While a very small market segment but I've noticed that my user demographic's
snap story usage has been in rapid decline. The people whom I saw using snap
stories the majority of time, have since cut their usage in half if not
completely and switched to Instagram stories.

Going to be very interesting to see how they handle user growth & user
engagement.

~~~
ithinkinstereo
Yeah I see the problem as double-edged:

1) Teenage users, their bread and butter, are leaking out to Instagram

2) Older users, their growth market, are being "stolen" by the various
messaging apps that they're already on (plus Instagram)

So now they have to simultaneously fend off Instagram draining their primary
userbase, while also competing with all the popular messenger apps cloning
their main product feature.

The latter is going to be just as difficult as the former. Overseas, WhatsApp
(Europe), and WeChat and Line (Asia) are going to seize whatever int'l growth
they were hoping to grab. In the US, chances are that if Stories catches-on
with the older crowd, it'll be through either Instagram or the various
messenger apps they're already on.

During the IPO roadshow, SNAP was trying to position itself as a
media/entertainment company, but media companies will follow the audience, and
it's hard to see them sticking it out with SNAP if viewership numbers falter.

Hard to see how they claw their way out of this. The comparisons to FB are
poor IMO because they at least strong MAU growth going for it and no real
viable competitors with an alternative product. Even the comparisons to
Twitter are flawed. The doubly whammy of decline growth + decline revenue per
user is creating the perfect storm for SNAP.

------
zkirill
Is there any public company that releases earnings in realtime rather than
quarterly and/or annually? Has this ever been tried? Is there any rational
behind earnings being reported quarterly/annually besides it being aligned
with existing regulatory and accounting procedures?

~~~
valuearb
The procedures to produce an SEC report take time and aren't automatic.
Management discussion, etc.

As a former professional investor quarterly is fine. i want mgmt focused on
running the business, not reporting to investors. Anyone who wants more
frequent data so they can trade the stock can hit the road as far as I care.

~~~
zkirill
Interesting! Thank you for your perspective and insight.

Do you think that having some data reported automatically in realtime could
minimize surprises such as what we see here? Perhaps then the quarterly
reports could be more focused on describing the longterm strategy and market
landscape?

~~~
valuearb
Annual reports are for strategy. If you buy shares in a business that changes
strategy on a monthly basis, you don't need more rapid reporting, you need to
get out.

Go read Buffetts annual shareholder letters, they are free on the internet
going back 40 years. He repeatedly makes the key point that your investments
need to have some enduring competitive advantage, if they do you don't need
constant upgrades, if they don't sell. Enduring competitive advantages don't
disappear over night, if they degrade they do it slowly over many years.

~~~
beachwood23
> If you buy shares in a business that changes strategy on a monthly basis,
> you don't need more rapid reporting, you need to get out.

I think that with new companies, like Snapchat, Instagram, or even Uber,
changing strategies on a monthly basis has become somewhat of a requirement.

~~~
valuearb
If true it makes them terrible investments, because their future income
streams can't be estimated with any accuracy, so they cannot be valued.

But in reality it's not totally true. SnapChat and (probably) Instagram have
huge installed bases, but haven't yet figured out how to monetize them. They
aren't businesses or investments, they have no strategy other than just pure
speculation.

But Uber provides a service connecting riders with drivers that costs pennies
per ride to deliver and earns dollars per ride in revenues. If you know how
much Uber is spending to build out markets, and on unneeded distractions like
UberEats and self driving cars, you can estimate the value of their core
business. Uber's strategy has never changed, they've just obfuscated it.

------
peacetreefrog
It still seems overvalued. What would you rather own?

Snapchat -- which, after dropping 23% today has a market cap of 21.5B.

Or ALL of...

Yelp - 2.21B

GoPro - 1.21B

FitBit - 1.38B

Groupon - 2.01B

Twitter - 13.59B

Sonic - 1.27B

...for a total of 21.67B

~~~
slackoverflower
I would most certainly buy $SNAP over every one of these companies. People
don't get it. For everyone between the ages of 13 to 26, Snapchat is their
only social network, their only messaging app, their go to camera! That is
inherently more value that any of those companies combined.

~~~
nojvek
Facebook is big, it's everywhere. That's not cool for teens. Being different
is what teens want. This can backfire on snap too if there is something even
"cooler".

I will definitely buy some SNAP after they employees sell like crazy in
desperation. I am optimistic about future value of SNAP and pessimistic about
Facebook

~~~
anchpop
In my area, VSCO is on the up-and-up for picture-sharing

------
ChuckMcM
_[Net Loss] 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._

This reads like they gave out $2 BILLION in RSU's that vested if the company
went public. _That_ is a pretty sweet payday.

EDIT: It is a sweet payday unless you can't sell the stock to pay the taxes
owed right away. Then if SNAP tanks you have a HUGE tax bill and no way to pay
it.

~~~
cynicalkane
Snapchat was known for its unusual RSUs--they would evaporate in a set amount
of time unless a liquidity event happened. Apparently, if there's what the IRS
considers a substantial risk of loss, they're considered unvested and you
don't have to pay taxes on them. It looks to me like the situation worked the
same on the accounting side of things.

~~~
ChuckMcM
Ok, so that would confirm the 'creative use of tax law' feature which was also
part of the dot com world. Thanks for that.

------
aub3bhat
But! SNAP is doing AR, Spectacles are a stroke of marketing genius,
distributed to cool influencers, instead of boring geeks like Google Glass or
HoloLens. \s

Guess you can't fool all people all the time.

~~~
Fricken
On the earnings call they reported 5 million snaps taken using Spectacles, and
$8 million in revenue from Spectacles this quarter. Maybe 55-60,000 units sold
(?). That was the only thing I was curious about on the call.

~~~
aub3bhat
5 Million / 50K (worse if you use 65K) = 100 Snaps per spectacle over a 90 day
period = 1 Snap per spectacle per day. Thats super low engagement. For one its
not going to alleviate any growth concerns. I see an Apple buyout looming.

~~~
Fricken
Spectacles aren't really comparable to Google Glass, they're more like an
action camera, such as a GoPro, but dumbed down and really easy to use. What
counts as high user engagement for such a product? It's the sort of thing you
only take out for events and special outings.

~~~
aub3bhat
If they are supposed to function as action camera, then they are probably the
lousiest ones ever designed/made. While I am sure the weather is always
perfect at the Venice beach with enough sunlight. For nearly all other
scenarios, where you might want a camera, you might NOT want to wear
sunglasses. This is the reason why Google Glass had detachable attachment for
sunglasses. The fact that they are tied to sunglasses, makes them useless in
most other situations.

How are you going to wear sunglasses (unless of course you are on a beach) to
any indoor or late night event/outing without looking like total douchebag??

~~~
Fricken
I'm not sure you understand what action camera's are for, they're not for late
night events, that's what the camera on your phone is good for, and you
already have one of those. I've taken them Rock climbing, I took them out on a
trail ride, I took them to the zoo, Everybody in my town is hockey crazy, I
got shots of fans going nuts after a game. I shot a little cooking video, and
they were actually coolest for that (or any type of instructional video)-
they're simple enough that your grandma could make a cooking video, edit it,
and share it.

The downside is you can't really get the video up on youtube or somewhere
where it can easily be shared with anyone other than your Snapchat friends.
But whatever, there's probably a half dozen Shenzen startups cobbling together
open source Spectacles knockoffs as we speak.

~~~
omarchowdhury
How can you create "any type of instructional video" when the Snaps are
limited to 30 seconds.

~~~
Fricken
Although Soviet filmmakers in the 1920s disagreed about how exactly to view
montage, Sergei Eisenstein marked a note of accord in "A Dialectic Approach to
Film Form" when he noted that montage is "the nerve of cinema", and that "to
determine the nature of montage is to solve the specific problem of cinema".
Its influence is far reaching commercially, academically, and politically.
Alfred Hitchcock cites editing (and montage indirectly) as the lynchpin of
worthwhile filmmaking. In fact, montage is demonstrated in the majority of
narrative fiction film available today. Post-Soviet film theories relied
extensively on montage’s redirection of film analysis toward language, a
literal grammar of film. A semiotic understanding of film, for example, is
indebted to and in contrast with Sergei Eisenstein’s wanton transposition of
language “in ways that are altogether new.” While several Soviet filmmakers,
such as Lev Kuleshov, Dziga Vertov, Esfir Shub and Vsevolod Pudovkin put forth
explanations of what constitutes the montage effect, Eisenstein's view that
"montage is an idea that arises from the collision of independent shots"
wherein "each sequential element is perceived not next to the other, but on
top of the other" has become most widely accepted.

[https://en.m.wikipedia.org/wiki/Soviet_montage_theory](https://en.m.wikipedia.org/wiki/Soviet_montage_theory)

~~~
omarchowdhury
Send that to your grandma.

------
exogeny
So, let me get this straight: they expect to able to be a viable advertising
outlet for brands, despite having no demographic targeting besides a rough
guess at geolocation?

Hey, cool.

Good thing you're paying Google and Amazon about $200 million a year while
your user growth plateaus!

~~~
evan_
They can analyze which stories you look at and subscribe to, which branded
lenses/stickers you use, and I'd be surprised if they weren't using facial
recognition to analyze selfies to look for age/gender/etc data

~~~
ryanmerket
None of which brands buy on.

------
imdisappoint
Tech companies, and startups in particular, are touted as the powerhouses of
American innovation and economy.

And yet, it seems that the past 5 years of economic activity have been
illusory. I expect a similar fate of Uber and Airbnb. Once the dust settles
only the staid big co's shall remain.

~~~
nikcub
Top 5 companies by market cap in 2007:

Petro China, Exxon, GE, China Mobile, Industrian and Commercial Bank of China

Top 5 companies by market cap in 2017:

Apple, Alphabet, Microsoft, Amazon, Berkshire

That's a hell of an illusion

~~~
imdisappoint
It's a good point. But I'm alluding more to budding companies, not established
companies. Granted Facebook didn't IPO until 2012.

But, as far as I can tell the software industry has contracted into those big
5 tech firms. The siren call of working at a startup and making it is sounding
strident.

Knowing what you know now, what startup, if any, would you have joined 5 years
ago?

Would you join any startup now?

~~~
eldavido
I think it's getting harder and harder to justify. Especially given what mid-
career devs at these companies are earning. $150-200k base plus 100k/yr or
more in stock after a few years, that's far cry from 90k + 0.1% of some junky
seed company with about a 1% chance of IPO.

If you look at my comment history you'll see I've been saying this for a while
and I think it'll only get more true with further industry consolidation,
which will make it both harder to displace incumbents product-wise, _and_
harder to compete with them salary-wise.

------
pm90
Lets not forget that Facebook lost a lot lot of money before finally
discovering a way to monetize its services. This is SNAP's first public
earnings report.

Disclosure: Not a user or stock holder of SNAP

~~~
awkwardtortoise
With a company like SNAP, it's not a matter of monetization. It's a matter of
growth. SNAP better get its act together or it's gonna end up like YHOO or
TWTR looking for another company to buy it out.

FB grew at a faster rate than SNAP from a much bigger base.

~~~
rlanday
Who wants to buy a social media platform that's not growing?

------
aschwabe
"Hosting costs per DAU were $0.60 in Q1 2017"

This figure represents pure lunacy in the infrastructure department. Nobody
leading this team cares about cost.

~~~
boobsbr
Care to explain?

------
code4tee
They lost $2.2billion on revenue of $150 million. Ouch (and yes those RSUs
very much count). Even on an EBITDA basis they lost more than they had in
revenue.

They've got to turn the ship around. With user growth rather anemic they're
not going to easily "grow" their way to profitability. They need to sort the
fundamentals of the company to get the costs in check.

Problem is even if they had 50% margin today they'd be valued at a very rich
valuation. Long story short there's not much in the fundamentals other than
pure hype holding up the value of the stock at this point.

------
jeffchien
I wonder if they're hobbling their user growth by not having some alternative
lite app. I've come to associate their app with poor performance and battery
drain while Facebook apps are relatively fine, perhaps with the exception of
Messenger which they're slowly releasing Messenger Lite as an alternative.

~~~
kevindqc
Oh, since when has Facebook apps been better? I uninstalled them when I saw
how much battery they were using without me even opening them.

~~~
jeffchien
Hmm, that isn't the first time I've heard of that, but the Facebook app only
constitutes about 3% battery usage for me. Either way for Facebook and
Instagram you can just use the mobile web versions, but Snapchat doesn't have
such an official site.

------
myroon5
Average revenue per user (ARPU) decreased 14% over Q4 2016.

DAUs increased 5% quarter-over-quarter.

$2B in employee stock compensation.

Net loss of $2.2B in this quarter alone....

This looks really bad.

------
cocoflunchy
Under "costs and expenses":

    
    
        General and administrative
        Q1 2017: 1,174,476 
        Q1 2016: 24,011	
    

Am I reading this right? $1.2B? Is this because of the IPO?

~~~
cocoflunchy
After reading a little more I think this is stock compensation mostly.

------
bfrog
Wow, company makes an app and is valued at 1/5th the value of GE, an
international conglomerate making an enormous range of products.

Seems wildly over valued to me still. Compare to yelp even at a market cap of
~2b vs this 21b mkt cap behemoth. Yeah, time to short some Snap.

~~~
sinatra
Can you not discount a lot of companies like this? Google makes a web page
(after all, that's where most of their revenue comes from), Apple makes just a
phone (that's where most of their revenue comes from), etc and they are many
times bigger than any conglomerate.

------
ProfessorLayton
2B in employee stock compensation!

~~~
non_sequitur
One of the funnier parts is that for revenue, they grew +286%. for losses
(which +2200% if you include the stock comp), there is no percentage listed,
just "NM" (Not meaningful)

------
jasondc
#1 metric investors were focused on was user growth, similar to Twitter

------
cody3222
And Facebook is up in after-hours trading

~~~
awkwardtortoise
It's down 25%.

~~~
ceejayoz
That's Snapchat, not Facebook.

~~~
awkwardtortoise
I know. Aren't we talking about SNAP's earning?

Edit: Nevermind. I replied to the wrong comment.

------
jondubois
Amazing how you can have a $2 billion loss which represents a 2000% growth
year-on-year and which is 15 times higher than the revenue and yet you label
it as NM (Not Meaningful).

------
whatok
Down 18%~ right now. Low of 18.15. #s are worse than could imagine.

~~~
goatherders
I don't know. Some of us could imagine them pretty bad.

------
CodeSheikh
Plenty of Snapchat users (the ones who created the hype) are no longer
teenagers. They are moving away from Snapchat to more concrete (perceived
adult-ish) platforms like Instagram or not use them at all. Snapchat failed to
evolve their product. I mean seriously do we really need those creepy glasses
to record whomever you want?

------
sidcool
This puts me in awe of how Facebook/Instagram have been achieving such
phenomenal growth year after year.

------
timwaagh
really a net loss of two million on a revenue of 167000. that revenue is way
too low for a company with global reach. a single person can make that much.
my 'revenue' was 40k ish but at least i'm making a profit. so i'd be a better
'investment' than snapchat. sorry investors, currently not raising capital.
literally anybody can do better than this. they will go the way of the dodo
pretty soon.

ah ok...just saw that. dollars in thousands. that's slightly better but not
really. my rating for this stock remains 'dodo'.

------
beefsack
For those who don't realise immediately, Snap Inc. do Snapchat.

------
guelo
It cost them $2.3 billion to generate $149 million in revenue. Wow.

------
some1else
"User profiles with persistent content, what's the point of that anyway," said
Snapchat. "Oh look, our users are ephemeral too."

------
anujbatra
Cash and equivalents went up by $1.3Billion - they're just stocking money in a
cookie jar and declaring it as a loss? Great company for stock owners!

~~~
narrowrail
What do you think a public offering is for if not to raise cash? It's not like
they are giving it back as a dividend, so I'm not sure what the "stock owners"
are getting that is great? If the company grows, shareholders might reap some
rewards. Because it is a gamble, shouldn't the shareholders profit from their
belief in the company whereas most comments here decry Snap as worthless?

Please pick a side.

------
tomsaj
Should. Buy. GoPro.

~~~
nikcub
I've been spending way too much time on the finance boards so I can't tell if
this is sarcasm - because it would be in many other places

~~~
adpirz
Curious: what / where are go-to finance boards?

~~~
ovrdrv3
/r/wallstreetbets

------
roschdal
The bubble is bursting.

~~~
nemo44x
The SNAP bubble or tech or equities in general?

Many tech companies are posting growth inline with guidance and performing
quite well. Many publicly listed companies are performing quite well in terms
of projections. Condemning an entire sector because a single company shit the
bed in their first earnings call is a bit much.

Consider that even after this huge drop they are still at their IPO price. Not
that I'm a buyer of this company (I don't understand them - doesn't mean they
are bad but just that I don't understand them enough to invest directly in
them) but it isn't a disaster.

I've seen bubbles burst. You'll know it. This isn't it. This is a correction.

------
merb
why is net loss tagged as "not meaningful"?

~~~
kgwgk
The percentage change is "not meaningful": net income increased by 2100%!
(non_sequitur commented on that point a few minutes before you asked, by the
way)

~~~
harryh
And the change is "not meaningful" because it includes a one time charge for
stock compensation issued as part of the IPO.

~~~
kgwgk
I was going to say that it would have been not "meaningful" anyway, but I have
just noticed that they report EBITDA growth. It's a bit misleading to say that
EBITDA has doubled (from -$93mn to -$188mn). This is why growth is usually not
calculated when the baseline is negative. Going from losses to profits implies
growth "lower" than -100%, for example.

------
CodeSheikh
Where's Zynga hanging out these days?

------
zilian
Snapchat will quickly learn than obfuscating growing losses with "Not
Meaningful" is swiftly punished by investors...

I know it's not the main reason for the -23% in premarket, but it show a
certain culture and disdain for shareholders, in my opinion.

------
pwthornton
People keep mentioning that Facebook is taking their (few) features, but it's
more than that. Snapchat has always had garbage UX, and for awhile people
tried to claim this was a feature because it kept the olds off of Snapchat.

But Facebook takes user experience very seriously (hence why it is so huge),
and even though Facebook does so many more things than Snapchat, it's easy to
use.

My retirement-age Mom uses Facebook just about daily. I'm an older millennial
(who builds software UIs), and I find Snapchat baffling to use. It's such a
bad UX that I can't bring myself to want to use it.

Facebook is crushing Snapchat because it's more than just features that keep
users coming back on a daily basis.

~~~
pm90
Nah, their UX is fine. You and I (and your grandmother, incidentally) are not
the target demographic. BTW is the UX really that confusing? Sure its not 100%
intuitive but after playing around with it I was able to operate it fine.

~~~
pwthornton
I'm am an (older) millennial, so I should be in their target demo, and I lead
a UX team that builds enterprise SaaS products. I also head up our user
research efforts that include user testing.

I'm saying that in my professional opinion, Snapchat's user experience is not
good. And if you guys want to start a Go Fund Me over this, I'll bring in real
users and run tests on it. Maybe I'm wrong, but that's my working hypothesis.

If someone may age is already out of the core demo, how did Snap have that
valuation? Teens and college kids are just not that valuable of a market.

