
Snapchat's Evan Spiegel: ‘We Need to IPO’ - jwegan
http://www.latimes.com/business/technology/la-fi-tn-snapchat-ipo-20150527-story.html
======
aresant
Facebook at the time of IPO in 2012:

-= 526 million daily actives (1)

-= $1b net cash flow / yr

-= Last money in pre-ipo values it at $50b pre-money (2011) (4) when daily actives were 372 million

-= $90b market cap after 1st day

Snapchat today::

-= 100 million daily active users (2)

-= ?? net cash flow

-= Last money in values it at $15 billion pre (3)

\- - - - -

I understand that's not a perfect proxy to measure value / traction as
SnapChat is quick to point out - eg their users watch a lot more video than FB
users =- etc

So the revenue-per-user metrics may sway.

But, at the same token, FB at IPO time didn't have as favorable of a growth
market (they handn't figured out mobile yet, where today mobile = all of the
things)

Will be interesting to see.

(1) [http://www.zdnet.com/article/facebook-ipo-final-
numbers/](http://www.zdnet.com/article/facebook-ipo-final-numbers/)

(2) [http://www.businessinsider.com/snapchat-daily-active-
users-2...](http://www.businessinsider.com/snapchat-daily-active-users-2015-5)

(3) [http://www.bloomberg.com/news/articles/2015-03-11/alibaba-
sa...](http://www.bloomberg.com/news/articles/2015-03-11/alibaba-said-to-plan-
snapchat-funding-at-15-billion-valuation)

(4) [https://www.crunchbase.com/funding-
round/37bd05f961af726ba3c...](https://www.crunchbase.com/funding-
round/37bd05f961af726ba3c1b279da842805)

(5)
[https://tctechcrunch2011.files.wordpress.com/2013/05/faceboo...](https://tctechcrunch2011.files.wordpress.com/2013/05/facebook-q113-dau.png)

~~~
stephenhess
Great comment! The data shows a quickly growing social network and ad business
(despite a lot of the naysaying in these comments).

From my personal observations, younger folks are spending a lot more time on
Instagram and Snapchat, and a lot less time on FB and Twitter. And on
Instagram, a lot of Snapchat content gets re-posted with their username in the
comments.

Also, the amount of content I see created by people on Snapchat is way larger
than what you see anywhere else. The expectation of curation is much lower so
engagement is higher.

A few things about the product that I really like that illustrate Snapchat's
transformation into a revenue generating business:

\- The new "Live" stories from different places around the world are amazing
and one of the most intimate forms of cultural exchange outside of physically
visiting a place that I've experienced. Advertising has started in these
streams already.

\- The attempt with Discover to replace conventional TV programming with a
mobile-first format is bold and has the potential to grow as younger folks
find themselves consuming more media on their phones and as Snapchat builds
out better relationships with content creators in the LA area.

\- Snapcash is a smart first attempt at getting people's payment information
so that peer-to-peer but eventually brand driven commerce can happen on the
platform.

~~~
the_rosentotter
Indeed, Snapchat seems to be doing well. Facebook, not so much:

[http://www.google.com/trends/explore#q=facebook](http://www.google.com/trends/explore#q=facebook)

Snapchat and Instagram was born on mobile whereas Facebook have been
scrambling to adjust their offering to a different form factor than it was
created for. With all of the technical debt Facebook seems to be saddled with
no wonder they're not doing so good.

~~~
encoderer
You put an awful lot of faith in a graph with no numbers...

~~~
cblock811
Move our cursor over the graph. The numbers pop up when hovers over the line.

That being said, this graph is a weak indicator. Facebook is doing well in the
ad space.

------
zwtaylor
> Spiegel also said he believes there is a tech bubble that will eventually
> burst.

My cynical reading of this is that Snapchat wants to grab as much of retail
investors' money before consumer tech valuations implode.

~~~
swalsh
If he actually thinks there's value in his company, the tech bubble bursting
would only help him as salaries should be pushed downward.

~~~
makeitsuckless
That would be true if there was a salary bubble. There isn't. On the contrary,
salaries for engineers are still low relative to the scarcity, and tech
startups are only a small portion of the IT job market. And most startup jobs
are actually underpaid compared to "boring" IT.

There may be a bit of an impact in SV, but not much beyond. Same as last time.

~~~
toomuchtodo
> And most startup jobs are actually underpaid compared to "boring" IT.

Most tech workers don't realize this. I can work an exciting, below market
startup job (infrastructure/devops), and then hop back into enterprise IT (it
manager/vp engineering/senior linux admin) when the going gets tough and get
paid more (ie market rate) until the next startup wave comes through.

------
7Figures2Commas
Snapchat reportedly has minimal revenue, and is already discovering that
advertisers aren't going to pony up $100 CPMs[1].

When Facebook went public, it was already generating more than a billion
dollars in revenue a quarter. When Twitter went public, it was generating well
over $100 million a quarter.

There is no doubt that Snapchat is an important platform and can generate
revenue - perhaps significant amounts of it - but it has a long way to go
before it can justify a public market valuation anywhere near its current
private market valuation.

For comparison, Twitter is currently worth about $23 billion and generated
more than $400 million in revenue last quarter.

Snapchat, in its current state, might be an interesting public market
investment at a few billion. Above that, there are much better risk-reward
opportunities.

[1] [http://recode.net/2015/05/08/snapchat-lowered-its-ad-
rates-f...](http://recode.net/2015/05/08/snapchat-lowered-its-ad-rates-for-
discover/)

~~~
paulpauper
But snapchat has huge unlocked revenue potential. they can 'flip' a switch and
instantly monetize those millions of users by launching an advertising
platform similar to the one Google and Facebook has. Facebook deliberately
waited years before generating meaningful revenue, so did Google.

~~~
7Figures2Commas
You're confusing the subject of potential with the subject of valuation. If
Snapchat goes public at a valuation anywhere near its current private market
valuation, the revenue potential will be more than built in to the valuation,
with minimal discount for risk I might add.

As a public equities investor, this is entirely unappealing unless you believe
that Snapchat could deliver a multiple far in excess of comps like Facebook
and Twitter and at a time when valuations are already so rich.

At this point in the cycle, I do not believe it would be wise to be chasing an
issue that has retail investor appeal but minimal revenue. If you're bullish
on social, you could do a lot worse than to invest in the company that has the
best working model.

~~~
paulpauper
that's why it has the valuation it has. the valuation is pricing in the
potential . People thought Google and Facebook would not deliver, but they
did. Maybe snapchat will, but maybe not. I think they will.

------
chatmasta
One could attribute Spiegel's "tech bubble" to the very ecosystem Snapchat is
a part of. Consider the current cycle of money:

\- Venture capital goes into StartupX

\- StartupX two biggest costs: Infrastructure, Advertising (to varying
degrees)

\- Infrastructure money goes to BigCorpY hosting platform

\- Advertising money goes to BigCorpY advertising platform

\- BigCorpY acquires StartupX

\- Money and BigCorpY stock goes into pockets of StartupX stakeholders

In this case, Snapchat spends all its infrastructure dollars on google cloud
platform. Even when though Snapchat is not profitable, it still gives millions
of dollars per month to Google.

(Snapchat, as far as I know, has not spent much on advertising, but some
startups do not have that luxury.)

How fragile is an ecosystem built around ad dollars funded entirely by venture
capital? What happens when Facebook misses earnings due to declining ad spend?
Do venture capitalists reduce investment due to lowered expectations of
highest possible reward?

Is this a house of cards?

------
interesting_att
Am I the only one here who is impressed with Evan Spiegel + optimistic for
Snapchat?

Everyone keeps citing the fact that the company is pre-revenue and pre-
profits, but FB was too for a while. Snapchat can easily turn on the revenue
and profit hose if they so choose to.

1.5 ads a day x $20 CPM x 100m DAU x 365 days/year = 1.095B in revenue a year
from advertising alone! With Snapchat's explosive growth, we can assume it
will eventually hit 200m DAU. That means 2.2b in annual revenue, just from
advertising! Add in monetizing things like the discover feature, Snapchat, to
even things like local event promotion, and that company can hit in 2.5b

The kicker here is that Snapchat can be instantly profitable. 1000 employees
will cost at max 100M, and infrastructure costs will only cost a few hundred
million. On 2B in revenue, that's insanely profitable.

The big question mark is if ads reduce user growth and engagement metrics.
However, it seems like Snapchat is a platform uniquely similar to TV, hence I
personally don't care when I see a high quality ad or two. Moreover, they are
putting a lot of attention to this issue, which is awesome.

Just for a comparison, Twitter made 1.4b in annual revenue and has never
posted a profit, and is worth 24 billion. If Snapchat makes 2.2b in annual
revenue, and got the same P/S ratio, it would be worth 36bn. Not bad to get in
at a 15bn valuation if you ask me.

------
encoderer
I wrote this here a few weeks ago:

Mind you, I've never used it, but Snapchat has 100 Million monthly uniques.

I can't think of a single company who has reached a critical-mass consumer
audience and not been able to monetize. Sure, winds change, MySpaces rise and
fall, but it wasn't a monetization failure.

Anecdotally, just a month ago I was walking and because i live in San
Francisco I happened across a corner (Howard and New Montgomery) where there
were ~20 girls about 13 years old being polled about their tastes, and the
questions I heard waiting for my light was "Do you guys like smartphones?"
("yes", duh), "Is your phone more important than your TV?" ("yes", duh), and
"What is your favorite app?" and the answer was unanimously Snapchat.

Snapchat is the teenagers answer to the question many millennials have fretted
about -- "how will ppl born today deal with having all 18 years of their
development online". The answer is: they don't put it online. It's peer-to-
peer and temporary by social contract, even if the technology is imperfect.

So far, snapchat has played a savvy game. As an engineer, if they were based
in SF, I'd consider working for them. They have tapped into something. Because
my 28 year old wife has also been hooked on Snapchat for what seems like a
lifetime now. Her most frequent contacts? Both of her 60+ year old parents,
numerous cousins and aunts, etc. Her dad uses it to send stupid pictures that
you might not expect from a 65 year old white haired CEO-type whose work is
about as far away from tech as you can get.

~~~
dkrich
>> I can't think of a single company who has reached a critical-mass consumer
audience and not been able to monetize.

Twitter, just about every news site, Pinterest, WhatsApp, Digg, ...

~~~
paulpauper
digg never got big enough. Pinterest, Whatsapp are intentionally delaying
revenue generation to build the userbase, a common strategy and not at all
proof that they cannot monetize.

~~~
Grue3
If they believe that whatever monetization method they're planning is going to
stop their userbase growth, they might just as well give up. There's a lot of
competition and the users can switch in an instant to something else. LINE had
monetization in mind from the beginning and is still growing. Meanwhile
Whatsapp is continuing to be a money sink for FB.

------
toomuchtodo
"We need to cash out before investors realize we have little value."

~~~
coherentpony
They were offered _three billion_ dollars that they turned down. That is the
best offer they will _ever_ receive, and they fucked it up.

They fucked up big time.

The value of a company pre-IPO is what someone (or relatively few people) is
willing to pay to acquire you. The value of a company post-IPO is essentially
how much your shares are selling for. The prices of your shares are largely
dictated by the opinion of a much larger number of people.

~~~
ejcx
Come on. Even if snapchat rapidly declines I am guessing Spiegel is going to
end up doing alright. Why not go for it like Zuckerberg did instead of
selling?

Can't succeed if you don't try. Good for the founders for deciding to run with
it.

~~~
spotman
Oh surely he will be fine. You would be a fool if you did as well as they did
now, and ended up in really dire straights on a personal level.

Having said that, I agree. It was likely a huge mistake to turn that down. FB
has whats app, and there is now so much competition in this space its uncanny.
From iMessages, to FB Messenger, to Whats App, and smaller players like Kik,
it seems like a congested market.

------
baristaGeek
If something like this happens, it's definitely a sign that a bubble will
burst. It's worrying that normal start buying shares from a unicorn with 0
cash flow.

------
ljk
It seems like it's hn's general consensus that snapchat isn't worth that
much(or anything), so why would anyone invest in it when it IPO's?

~~~
siavosh
For the same reason people bought over-priced homes a few years ago: greater
fool theory.

------
dataker
Any reason to assume it would only spread the (debatable) existence of a
bubble?

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adventured
Since this makes absolutely no business sense, you can bet it's being done to
cash out investors and shareholders, before the clock runs out on the party.

They can raise all the private funding they need, but they can't cash out that
way.

~~~
not_that_noob
Actually the fonders have been cashing out I'm pretty sure. Employees get
antsy if there's no way to cash out. Not to mention venture investors, for
whom this is (assuming the price stays up and they sell before the stock can
start nosing its way down) a huge payday they can bank and look good to their
LPs, so they can raise the next fund.

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fapjacks
... because we aren't actually making any money.

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wahsd
Let me complete the sentence in the title "... before this cycle of the tech
bubble bursts"

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MrGando
This guy sounds like an asshole :S

"because it's more fun that way"

That's it? that's the reason to stay independent? fun?

