
Snap Inc. Third Quarter 2017 Results - jakarta
https://investor.snap.com/news-releases/2017/11-07-2017-211621749
======
azinman2
“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.“

Looks like spectacles was a failure.

~~~
zitterbewegung
I never saw anyone on the street with Spectacles and that signals to me it is
a failure. I find this rule works for portable consumer electronics.

~~~
ggg9990
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.

~~~
zitterbewegung
Replace street with other parents kids at daycare .

------
liquidise
> _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?

~~~
rgbrenner
They have to receive the picture, then send it to a number of other users. So
it's probably mostly bandwidth charges.

They use Google, right? When was the last time Google (or any of the cloud
providers) lowered their bandwidth charges?

That small fluctuation is probably just minor variations in usage.

~~~
base698
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?

Ahem, I mean it could be.

~~~
mongodude
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.

~~~
dagw
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.

------
nl
The headline figure misses quite a lot:

 _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?

~~~
throwayit
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.

~~~
nl
_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.

------
Devolver
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.

More here: [https://exponents.co/snap-facebook-key-competitive-
strategy/](https://exponents.co/snap-facebook-key-competitive-strategy/)

~~~
lefstathiou
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.

~~~
rock_hard
I personally couldn’t disagree more.

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

~~~
jsemrau
That sounds really sad, to be honest. Where are you living that you can't have
face to face interactions on a regular basis.

~~~
dagw
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.

~~~
speedplane
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.

------
throwayit
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.

~~~
teen
Maybe they can get the fuck out of Venice

~~~
DrJid
Why? Is Venice expensive place to run operations?

~~~
teen
They've helped ruin the neighborhood. Took over so many beach properties,
cafes, restaurants etc

------
replicatorblog
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?

~~~
mmanfrin
Why would FB want them? They have successfully replicated Snap's model and are
taking their users/recapturing shared users.

WhatsApp had large marketshare and growth outside of FBs core markets.

~~~
hnarn
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.

------
georgeecollins
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.

~~~
brianwawok
How? How many ads will you watch before you dump the platform?

~~~
irishbro
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.

~~~
morrbo
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

------
ProAm
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.

~~~
sjg007
The kids still snapchat so... me thinks a while.

~~~
giarc
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.

~~~
big_youth
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.

------
jmbrook
[https://wolfstreet.com/2017/11/07/how-can-a-company-once-
wor...](https://wolfstreet.com/2017/11/07/how-can-a-company-once-
worth-30b-lose-443m-on-just-208m-in-revenues-heres-how/)

Has a fairly bleak write up. It makes the point that if enriching the founders
is the aim they are doing pretty well.

~~~
Quarrelsome
I love that sales projection that demonstrates some people are unaware that
there are potential uptake numbers lower than 1% :D.

> "Even if only 1% of people buy them we'll still profit!"

~~~
dagw
_I love that sales projection that demonstrates some people are unaware that
there are potential uptake numbers lower than 1%_

"The number smaller than 1 is 0, and we're obviously going to sell more than
0" ;)

------
elsewhen
SNAP down 16% in after hours trading (at 4:54pm eastern time):

[https://finance.google.com/finance?q=NYSE%3ASNAP&ei=bSsCWpmn...](https://finance.google.com/finance?q=NYSE%3ASNAP&ei=bSsCWpmnGsTcjAHz34eADA)

~~~
giarc
For those wondering, click on the chart and type 'e' to show after hours
trading.

~~~
mandeepj
I use Yahoo finance and it displays after-hours stock price by default -
[https://finance.yahoo.com/quote/snap](https://finance.yahoo.com/quote/snap)

~~~
giarc
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).

------
whathaschanged
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.

~~~
econner
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.

~~~
speedplane
Why would it be better to be a "real" company that has to make a profit, than
one that gets endless investment and gets to live in fantasy land?

The only reason is that the "endless investment" dried up.

------
justinzollars
Missing words: Camera, picture

present: Application

Camera company?

------
Eridrus
Am I reading this right: have they lost 3bn in the last 9 months?

~~~
JonFish85
The footnote kind of explains this:

"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.

~~~
rrhd
Totally deserves billions for running a money losing operation thats getting
eaten alive by the competition.

------
tim333
$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.

------
loourr
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.

------
rblion
How long do you think they have left?

OR

Do you foresee them surviving beyond 2027?

~~~
jondubois
\- They lost $3 Billion in 9 months.

\- 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.

~~~
spyspy
> most expensive

Not really. Like any hosting platform, if you know how to tune it properly
costs can be kept low. We cut our infra costs in half moving to GAE. YMMV.

~~~
scurvy
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.

~~~
speedplane
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.

~~~
scurvy
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.

~~~
speedplane
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.

------
richardknop
They are burning a lot of money quickly but that is not the biggest problem.
This is most worrying about Snap:

Daily active users 178M (est: 180.5M)

Their active users growth is very slow.

166 (Q1) -> 173 (Q2) -> 178 (Q3)

It seems that already slow growth is slowing down even more. They started the
year with 5% quarterly growth, then went down to 4% and now barely 3%.

------
bojanvidanovic
After reading what happened to spectacles, I thought they would significantly
drop prices.

------
dingo_bat
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.

~~~
sitepodmatt
You mean like the roaring success FaceTime is in the messaging space? And how
.pages beat out PDFs?

~~~
sgt
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.

