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Snap Inc. S-1 (sec.gov)
465 points by harryh on Feb 2, 2017 | hide | past | web | favorite | 311 comments

"We have committed to spend $2 billion with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google, some of which do not have an alternative in the market."

There's some numbers for you that Google wouldn't have provided (as far as I have seen).

Is it not possible to build your own "alternative in the market" for $2 billion?

This, and related topics, always makes me laugh a bit. Mostly because people and companies will defend either move, with terms such as "focusing on the core business" or, opposite that statement, as "vertical integration".

From my mostly uninformed POV, a company can do whatever they want with respect to this and be on good ground, making it an arbitrary decision with little basis in actual objectivity.

Things scale differently in different markets and products... It might be trivial to spin up extra cloud capacity within Google's system and benefit from all the robustness and redundancy they've already designed out. Meanwhile, Amazon is building their own UPS competitor because their infrastructure needs in the real world are specialized enough to be able to benefit.

Each case is different and the details drive the decision.

I think Amazon is building their own UPS because UPS hasn't scaled for them.

In this case, scale counts as a specialization IMO.

TLDR (for my comment) : Amazon are building their own UPS because they can. Any othe arguments in favor of it be it efficiency or costs are secondary.

Longer version: Not sure how Amazon deliveries by UPS are in the US but in the U.K. there are carriers which offered far better delivery service than what is known as Amazon Logistics here in the U.K. Once Amazon started using Amazon Logistics, the level of service dropped significantly. False deivery attempts were common and Prime Next Day were not happening next day 3 out of 5 times. I cancelled my Prime membership.

After about a couple of years I have resubscribed to Prime since it is now much better value AND Amazon Logistics have noticably improved. Next day and even Same day deliveries are indeed happening.

They didn't need to setup Amazon Logistics and suffer poor service quality. There were near perfect couriers (for e.g. DPD they even offer tracking your courier driver on a map in near real time).

That wouldn't be surprising at all. Alibaba has long been building its own logistics for Taobao in China as well. It's quite a natural development of affairs I guess.

To clarify: is Amazon designing their own Uninterruptible Power Supply for AWS, or their own parcel shipping service?

> Things scale differently in different markets and products.

This is vague.

Running on the cloud is always more expensive than running your own infrastructure past a certain size and always provides less predictable performance.

That doesn't seem obviously true. If you operate a service and I operate a service and their loads are out of phase the cloud provider can serve us both with one set of hardware, halving the price. If I own my hardware, and I'm not a cloud computing provider, I pay the full cost 24x7.

That both directions can seem like a good idea to a speculating outsider doesn't mean the decision is an arbitrary one. It means the deciding factors aren't something we're privy to.

... but might still be wishy washy things like personal opinion or background of key stakeholders, company culture, etc.

It's not arbitrary.

It's actually about whether or not it would cost more, over the long term, for a company to develop such capabilities themselves, or to outsource it.

Generally, due to economies of scale, a big, established provider will be able to provide such a service much cheaper than it would cost you to run an equivalent service.

However, it depends on how much that provider is charging you, on top of their cost of sales. It's pretty basic in that if it costs more to do it yourself, it's easier to let someone else do it. Especially when you take into account the considerable R&D costs that it would take to provide an equivalent service. Google's services would, I'm sure, be highly developed. This statement says as much, in that it claims Google has services offered by no other company.

So no, it's not arbitrary.

Expert on Cloud Computing here. Short answer is "No". Here is why. Google Cloud has infrastructure that scales to petabytes of data and millions of users. Google primary uses this infrastructure for storing, processing and communicating the Internet. Add the services like Pub/Sub, Dataflow, BigQuery, TensorFlow & CloudML and things like security, communication backbone, ... its near impossible to build Google Cloud or even few critical components like the ones mentioned above with 2 billion dollars. Also, if they focus on building infrastructure, it might slow them down significantly. They are better off building their chat platform rather than building the infrastructure.

Hmm. Cloud computing expert here, too. I partially disagree.

I would simply say "it depends". For companies with specific use cases, e.g. Dropbox, it makes A LOT of sense to build at least 60-70% private, and the rest on AWS or GCP. Snapchat looks like a special case to me.

If you are doing just one or two things at a massive scale (Dropbox storing files), it makes sense. But, we are talking about Snap Inc, the infrastructure, and services it needs. A single high-speed intercontinental fiber cable costs 400 Million $ (https://techcrunch.com/2016/10/12/google-and-facebook-are-bu...). To build a service like CLoudML (Hosted TensorFlow), you need to write software (TensorFlow), build the ASIC Chips by manufacturing / by partnering with a chip manufacturing company like Intel / Samsung / Qualcomm, you need custom networking software and hardware to scale massively for data workloads (Andromeda), years of research to build these tools, you need to create your own programming language (Go and Dart) to be able to scale your development to these levels, you need to build data centers in multiple regions, you need to build DeeLearning models for cooling your data centers (https://deepmind.com/blog/deepmind-ai-reduces-google-data-ce...), ...

Why would you write your own Tensorflow and Dart and Go when you can use them free of charge?

That was his/her point.

That interpretation would only make sense if TF or Go could only run on Google's "cloud".

> if they focus on building infrastructure, it might slow them down

I always found this issue of "focus" a bit strange. Two billion can buy a lot of focus. For example, say there was a separate company smaller than Google that snap outsourced their infrastructure to, allowing them to focus, then they bought that company - it comes out to the same.

The technical capabilities is a different story.

The amount of money on the table isn't 2 billion dollars. The amount at stake is the difference between 2 billion dollars over 5 years, and the theoretical best case operating costs of your own infrastructure, which very well might be higher than Google's because Google's scale is bigger. Snap might say to themselves that they don't want to be paying Google's margins, so they invest a billion dollars in development for infrastructure with identical performance costing only 350 million a year instead of 400 million. Is that worth it?

By the time the other company builds infrastructure, some other company would have built the product that Snap wants to build.

By "cloud computing expert", do you mean Amazon sales shill? It's weird enough that someone on HN would just use that vague credential of "expert" in the first place, but this thread is ridiculous ('round here, usually we recognize experts when they say something along the lines of "Hi, I'm the guy discussed in the article...", or "Hi, I actually wrote that software 15 years ago...").

You know that Snap can hire more than 3 people, right? They can have people working on the infrastructure at the same time that someone else works on "the product" they want to build. That's what happened at Google, and as a side effect, they now have a cloud platform they can rent out.

There are some benefits to using cloud services in some cases. It's rare that 100% cloud is a wise deployment move, especially for companies that operate at Snap-scale.

That's the point I'm trying to make. Snap has, say, 100 employees + $2b. The 100 employees are working on features. The $2b can now go to Google, or to purchase "focus" for in-house infrastructure, there is no slow down in developing features. Now if they can't technologically duplicate what they need using $2b is a different story which I have no opinion on.

They don't just have to build it though; they have to build it fast enough to handle their growth. $2B might not be enough (or it might not even be possible for any amount) to build what they need fast enough to not hamper growth.

Also, by buying from Google, they hedge against lower than expected growth too. If growth doesn't meet expectations, while they're still obligated to spend the $2B, they can re-sell the services for likely close to cost, given they'll be getting a discount.

Of course it's damn possible to build that with $2 billion. Will it be robust as google's infrastructure? No. Will it have (unlimited) scale as Google has? No. Will it have network connectivity and geographical distribution as Google has? No.

So, if you set scope on expectations and dedicate time and resources, it's definitely possible. Reasonable? Probably not.

It doesn't matter the amount of money you have, it's basically impossible.

Everything at Google is an internal Google secret made by Google for Google. ALL the software and ALL the hardware that's running it.

Services rely on lower-level services. If you want to copy the high level service yourself and executes it at the same level Google does, you'd need to have everything it depends on. Too bad for you, each piece is a multi billion dollar projects itself, with its own dependencies...

Let's imagine for a minute that there was a service that is somewhat standalone-ish. You may consider poaching the handful of people who can make it, for $1M a head. But that won't work well because money is not everything and you can't help it. Whenever there are ONLY 50 people in the world who can deliver what you need and you need almost all of them, you're fucked.

In short, the castle is out of reach, even the building bricks are out of reach ;)

That's really the thing with Google. They have this huge empire and they build on top of their other work. This is why Apple Maps could never come close to competing with Google Maps. This is why Google Home at launch already did a far better job at understanding queries than Alexa which has been out for 2 years.

They're so well situated, with a years worth of technology and tools, so it's really hard for a new comer to compete.

Not a businessman but who says its all about the infra. buy vs. build. It allies them with Google. It gives arguably the most powerful co. in the world a stake in Snap' growth and success.

That's a great point, along the lines of, "When you borrow $100 the bank owns you; when you borrow $1,000,000 you own the bank"

I dunno, $2 billion over 5 years is not exactly a ton of money to big G.

It is to GCP. GCP revenue is currently much less than $4 billion run rate.

They are reporting ~4B run rate for all cloud but that includes SaaS, GCP run rate may be < 1B (but it's hard to know for sure).

It might be possible, but Snap could be constrained by engineering resources. Google has some super smart engineers and while Snap might be able to build something cheaper, that might mean pivoting your entire primary business to essentially compete with Google.

Maybe it is, but this is a path-dependent phenomenon. GAE allowed Snap to reach this point in their growth. If they had earlier focused on internalizing their operations they might have failed to get here. Now that they are here, it apparently makes sense for them to commit to GAE for at least several more years.

Keep in mind that Google Cloud is much larger than App Engine.

If there's an adequate supplier, why take the risk and time to develop second-mover competition to them rather than just buying from them and building your core business?

It is absolutely possible to build a stellar internal alternative to Google's offerings in 5 years with 2 billion dollars.

edit: I should point out that this doesn't account for ramp-up. It would obviously take awhile before things would be to a point where it would be even comparable.

Just to clarify your answer, here is another thing Google won't tell you: once you build yourself in their cloud you will have to find something else to do with all the time you used to spend on latency.

Why won't Google tell you that?

Oracle is spending way more than 2 billion dollars on its cloud team in an attempt to catch up to AWS, GCP, and Azure.

Would you consider Oracle's cloud endeavor a fair test of how able a company is to reproduce GCP's offering with a fistful of money?

What I can't figure out is why Oracle didn't start down this road 10-20 years ago. They more than anyone should have some ideas about scaling infrastructure for databases.

sales led, not strategic, and it would have cannibalised their existing money printing machine. imagine if they started offering their customers PAYG elastic accounts rather than multi year mega provisioning deals - their numbers would have been destroyed

Oracle is offering external services, that is a huge differentiating factor

But by the time you matched them, they likely would have moved way beyond, with all kinds of new features...

Two options. Companies can focus on cutting costs (roll their own infrastructure), or focus on expanding revenue. Snap clearly should and is in expanding revenue mode.

In my opinion, it's highly unlikely that you could match Google's hardware for $2 billion ever, much less in 5 years.

Keep in mind that Google's revenue in 2015 was $75 billion. Their hardware and software know-how is fundamental to their ability to make this kind of revenue, so you better believe they're investing more than a measly $400M per year (Snap's $2 billion over 5 years) back into their hardware. This Snap commitment is a drop in their revenue ocean, at 0.5%.

From a non-fiscal perspective, there's a lot of other great reasons to think so. For one, they've been building custom hardware for a decade at least to support the needs of running at the scale they do. Worth checking out this paper [1] and this video [2] if you're interested in some of what they've been doing purely on the networking side. In mid-2015 their newest data centers were pushing 1 petabit per second of cross-sectional bandwidth. [3] That's mind-blowing capacity.

So their internal data center networking is at or near top of class. In addition to this, they've also invested heavily in inter-DC and backbone capacity [4. Again, this is something that you presumably benefit from when, say, distributing your content across the world for faster access.

In addition to that, you get access to all their class-leading scheduling software and state management software that they've developed, refined, and redeveloped over the last 15 years. They know how to take a pool of compute and storage and turn it into solid distributed systems like only a few organizations do. I'm sure they get a good amount of advising from Google's experts somewhere in that $2B, not to mention services like BigTable, Kubernetes, etc. that you can find on their growing products page [5].

So though I can't back my prediction up with solid data, since I'm not a Google exec, I think it's pretty obvious that even $2B is not going to get you anywhere close to Google's existing infrastructure. Definitely not in 5 years.

[1] http://conferences.sigcomm.org/sigcomm/2015/pdf/papers/p183....

[2] https://www.youtube.com/watch?v=n4gOZrUwWmc

[3] http://www.datacenterknowledge.com/archives/2015/06/18/custo...

[4] http://www.telegraph.co.uk/technology/2016/06/30/google-laun...

[5] https://cloud.google.com/products/

Key point: You dont have to match all of their hardware nor all of their software - just what you are utilizing and some of that could be done from existing open source projects - Snap certainly does not utilize every piece of hardware in existence for Google Cloud Platform

Be serious for a minute.

First, the open source world is a pile of crap that doesn't work and doesn't stick together. It's not remotely comparable to any of the offering from AWS or Google, let alone their combination of offerings put together.

Second, they definitely use EVERY piece of software and hardware. Just like anyone who has over 100m daily users.

You don't need to match their hardware. You need to match the subset of features and functionality their hardware provides to you. That is a much smaller footprint and smaller/specialized engineering problem.

You seem to be assuming that all of googles revenue is going back into hardware/backend investments, and that somebody using Google cloud offerings is getting full access to everything they are investing in.

Neither have any basis in reality.

Of course it is. But you need to operate the service while you're building the replacement. What that says to me is that there is an order of magnitude improvement in their operational costs available to them. Depending on how long it takes to build their own infrastructure, that could imply a big boost to margins 1, 2 or maybe 3 years down the road.

The cost of moving software that relies on app engine frameworks is probably the bigger unstated one. Unless you can port those frameworks to your shiny new datacenter with automated deploys, etc, you'd be running two versions of the same code for a while.

you could probably make microservices a requirement as a governance issue for this reason alone

There is also the opportunity cost of investing in hardware

i doubt it would involve hundreds of millions let alone billions in hardware costs.

Most likely not. My understanding is that Google also has their own long-haul ocean fiber, and those things cost hundreds of millions of dollars by themselves.

Why take the chance when you're about to have a lot of IPO cash? Go with Google for a few years until you (hopefully) become FB. Right now they'll focus on features, signing advertisers and users.


I imagine they had a very strong bargaining position willing to commit this much, for this long. Even if Snapchat wasn't a valuable brand for Google to brag about, this amounts to ~10% of the yearly earnings [1] of Google's cloud business (SaaS and IaaS, of which I suspect SaaS like Apps for Work is the lion's share)

I'm sure they're getting a good deal, and can focus on features and getting their platform profitable, as you said.

1. "..at that pace, Google’s cloud could generate $4.1 billion in revenue in 2016" http://www.networkworld.com/article/3029164/cloud-computing/...

for infrastructure on that scale smart money would be on Lambda or some other FaaS to leverage huge price savings and create a barrier to entry for competitors

So Snapchat is basically ~80% (or more) of the entire Google's cloud business (if exclude G Suite from the Google's cloud).

Has Google published cloud revenue numbers? I haven't seen those, please link if so. Thanks

http://fortune.com/2016/10/28/google-cloud-business-2/ states their "other revenue" was $2.543 billion for its third quarter. A chunk of that is from Cloud. So it is definitely the largest share but not sure if it is quite 80%.

Just to clarify, Snap's S-1 says they're committing $2B over the next five years (specifically, $400M per year) - the number you've provided for Google's "other revenue" is $2.543B just in Q3. Ergo, it's nowhere near 80%. :)

Very correct! Got my numbers all switched around when looking for more information and was somehow thinking of 2B a year. Thank you.

Wow, single cloud lock-in filed with the SEC. Isn't 400m/y a bit steep for storage and compute power?

$400 million annually represents a monthly cost per user of $0.21 at 158 million daily active users. Which seems high at scale when looking at storage + bandwidth alone, I would think, but I'm also not a big Snapchat user so I'm not sure what is going on in terms of long term storage of video on an account level.

I would think their bandwidth costs are astronomical. Since 19/3/16 Snapchat has used 14.8GB of mobile data on my iPhone alone - not including WiFi.

Bandwidth is kinda cheap these days though, if you avoid GC and AWS. Anyone have recent numbers at this scale of commitment?

They will get a bulk discount so it will be cheap probably close to zero.

Close to zero but $400M in related expense.

I literally lolled at this comment.

I assume this is sarcasm...just want to verify :)

I would also assume they have factored in some growth over the next 5 years... If they don't have many multiples of 158M DAU by 2022 they are screwed regardless of their hosting bill.

They're likely using Google's state of the art Vision/Speech API etc.

Interesting detail from the Google license exhibit:

Encryption Technologies. Google makes HTTPS encryption (also referred to as SSL or TLS connection) available. Google servers support ephemeral elliptic curve Diffie-Hellman cryptographic key exchange signed with RSA and ECDSA. These perfect forward secrecy (PFS) methods help protect traffic and minimize the impact of a compromised key, or a cryptographic breakthrough.


How is that "interesting"? They're just saying they use ECDHE which, by definition, provides forward secrecy.

Isn't that's just a description of all TLS? ECDHE/DHE key exchange is essentially employed on any non-poorly configured modern https site, TLS 1.0-1.3draft.

I find the "do not have an alternative in the market" comment interesting - is there really anything which AWS does not have the GCE does?

Come on, HN. How can nobody be mentioning some of the much cooler stuff available on Google Cloud?


It's a mistake to just compare Google with AWS, thinking in terms of basic storage and computing. That's boring and obviously there are tons of alternatives, including Snap Inc. building it themselves, for the amount of money cited.

When it comes to cutting edge AI and related, Google's offerings clearly stand out among other cloud services.

Are these sorts of things latency-sensitive enough that they couldn't use them with EC2 and similar? Or are the bandwidth needs so large that bandwidth charges cancel out any compute savings?

How is it different from Azure ML and Microsoft Cognitive services?

I'm guessing it's their incredible amount of user data to drive that ML and AI.

Are they charging per single prediction like amazon? If so then it's almost a non-starter unless ML is the product.

Sort of, but not exactly. https://cloud.google.com/ml/pricing

I'll just leave this here... https://www.google.de/webhp?sourceid=chrome-instant&ion=1&es...

Disclosure: I work on Google Cloud

Exactly. What's the closest thing to datastore from other providers? DynamoDB? Some kind of hosted Cassandra?

There's a fairly exhaustive comparison between their compute services here: https://cloud.google.com/docs/compare/aws/compute

But without anymore context into what Snapchat is saying, it's too easy to read just about anything into that comment.

If you're already tied into GAE, Google's other offerings in cloud become really easy to tie in, from adding buckets in GCS to adding extra stuff in GCE. With the soonish coming of Google Pub/Sub, it takes a lot of effort to switch to AWS.

> Is there really anything which AWS does not have the GCE does?

Firebase is the killer here. AWS and Azure don't have it or anything comparable for realtime data. If they do, please tell me about it because I'd love to know about it!

I'm particularly interested in this because I'm building a product supported by Firebase and will have the same lock-in described in this filing.


Was that intended to be humor? DynamoDB is to Firebase as a CSV file is to a personal computer.

GCE is incapable of doing the most recent cloud setup I've built on AWS, which uses g2 instances extensively (although Azure could).

I need the actual GPU—graphics, OpenGL, etc.—part, not just CUDA, in addition to the hardware H.264 encoders that come with nVidia's GRID CPUs. GCE has no equivalent.

We're also using Amazon's Elastic File System, and I don't think Google has an alternative—though that's something I could handle differently if I had to, at higher cost.

We announced that we'll have AMD's 9300x2s and NVIDIA's P100s at Supercomputing: https://cloudplatform.googleblog.com/2016/11/announcing-GPUs...

I'd be happy to get you early access, Erich ;).

Disclosure: I work on Google Cloud.

Interesting, I'll keep any eye out. The main renderer we use (Hydra, part of Pixar's USD[0] project) would need to be ported to run on the AMD GPU, but it's designed to be backend agnostic to a degree so it should be possible.

I'm pretty sure AMD also has the ability to H.264 encode the screen at 60fps (with low latency) which is really important to us—our "workstation" is entirely in the cloud, with a Pi 3 running the display/keyboard/mouse.

[0] http://graphics.pixar.com/usd/docs/index.html

There isn't an alternative inasmuch as there isn't a drop-in replacement. Thus, there are switching costs, which thus represent financial (and counterparty!) risks.

Compare this situation to Dell v. Lenovo v. HP commodity x86 servers: if one goes out of business, you can go to the others (and proactively use this as leverage when negotiating). EDIT: Or more realistically, you don't need to do much/any work to run your service on a Dell v. an IBM.

Snap runs on Google App Engine, not on GCE (or perhaps they use both).

Maybe the amount of rebates received?

I remember seeing the CTO or VP of Eng @ Snap was the Director of Eng on Google Cloud Compute. It seems to not be a coincidence.

You're thinking of Peter Magnussen but he left for Oracle shortly thereafter:


Is anyone else seeing these numbers? How are they pushing for such a high valuation with those kind of losses?

I suspect that Snap is merely capitalizing on traditional advertising metrics (engagement, CTR) which don't translate over on their app, and the advertisers just haven't caught on yet. People play with filters because they're funny/amusing, but those impressions don't convert into purchases in the same way other types of ads would.

Earlier last year Snapchat temporarily featured X-Men filters exclusively ahead of the movie release - I interacted with those for the novelty (and mainly because they disabled all the other filters so there were no other options) but I did not see the movie.

Again, I'm not sure if they follow something similar to a CPC model or what, but I bet it's expensive. If the advertisers decide it's ineffective their newfound revenue growth certainly won't be sustainable.

> To generate excitement for X-Men: Apocalypse, 20th Century Fox ran a Sponsored Lens campaign that let users turn themselves into the iconic characters in the upcoming movie. In one day, people spent a collective 56 years playing with the Sponsored Lenses, which also featured the mutants’ powers. They also incorporated the Sponsored Lens into Snaps they shared with their friends, which yielded over 298 million views for the campaign and greatly amplified awareness and anticipation for the movie. The campaign resulted in a 13 percentage point increase in brand awareness, 7x the mobile norm, as measured by Millward Brown. More importantly, the Sponsored Lens also drove a 25% lift in theater-watch intent, over 3x the mobile norm.

Maybe the X-Men filters didn't get you to watch the film, but it certainly worked on others.

When it comes to movies, what Rotten Tomatoes has to say is usually more persuasive than a Snapchat lens

How many people actually care about Rotten Tomatoes ratings though?

I know of plenty of movies that have terrible ratings from professional critics, but got great box office earnings and all my friends who watched it really enjoyed. There's also plenty of movies with great ratings that I disliked.

Outside of your programmer/hacker/related friends, how many actually look at at the Rotten Tomatoes/Metacritic ratings before deciding to view a movie. I know I don't for theater movies.

Take the new Jack Reacher movie, it has mediocre at best ratings, but I really enjoyed it (I must admit I watched it at the cinema for free, and had nothing better to do).

I think that for the average person, exposure is a very effective method of advertising films.

I was using Rotten Tomatoes mostly as a placeholder for all the movie reviews/discussions on sites like Reddit, niche film-focused communities, etc.

I personally go by the Reddit discussion on /r/movies. It usually tells me if the movie is going to be worthy my time or not

That figure of speech is known as Synecdoche, btw. https://en.wikipedia.org/wiki/Synecdoche

>"drove a 25% lift in theater-watch intent"

Intent is not action.

But it is a way to compare ad effectiveness across mediums so what is your point?

I would disagree about the value they are offering to advertisers. Offering a platform where targeted users actually engage with the ad is huge. I'm no advertiser, but that sounds kind of like the holy grail - the user is not only engaging with the ad, they are then sharing that ad + engagement with their friends.

Is it worth $25bn? Seems like a (massive) stretch, but maybe. Can it still realistically increase in value from this point? Probably not.

No idea what it's worth, I just disagree that their ads are less valuable than other types.

agree this reeks of ca 2000 burstage... so you have a bunch of eyeballs you sell ads to. Big f'in deal, that's not a $25B business unless you can continue to scale 10x (profitably). The rest is simply tech-fad novelty junk.

I'd still buy into the IPO and ride it up a bit though.

Ride it up? You think it'll do a Facebook? Go up a bit and then tank immediately for a while?

Not only engaging with that ad, but you can literally observe them have fun / smile because of it.

This is the #1 myth of social media startups - that you can be in the red at this phase and easily turn it all around. People forget that Facebook was ~$50m in the black before they even took a series A.

You != everyone.

As previously commented, their advertising, at least in some circumstances, is highly effective.

The growth rate of revenue, how much more advertisers can spend on the platform before it's saturated, and how much Snap can jack up the price per metric, would also play a big role.

Executive Compensation

  Name and Principal Position
        Year         Salary        Bonus(1)          Stock Awards(2)     All Other   Total
  Evan Spiegel
            2016     $ 503,205     $ 1,000,000       $ —                 $ 901,635   $ 2,404,840      
            2015       363,715       1,000,000         —                   344,756     1,708,471      
  Imran Khan
            2016       241,539       5,239,460         —                   14,658      5,495,657      
            2015       230,000       —                 145,292,145         348         145,522,493    
  Timothy Sehn(6)
            2016       400,152       1,000,000         40,000,020          8,348       41,408,520

Looks like it is time for University of Waterloo to hit Timothy Sehn up for a donation.

Yea, is that $40,000,000 in stock for 1 year of work?

> We had 158 million Daily Active Users on average in the quarter ended December 31, 2016, and we view Daily Active Users as a critical measure of our user engagement.

> We anticipate that our Daily Active Users growth rate will decline over time if the size of our active user base increases or we achieve higher market penetration rates. If our Daily Active Users growth rate slows, our financial performance will increasingly depend on our ability to elevate user engagement or increase our monetization of users.

> In addition, because our products typically require high bandwidth data capabilities, the majority of our users live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas. We therefore do not expect to experience rapid user growth or engagement in countries with low smartphone penetration even if such countries have well-established and high bandwidth capacity cellular networks. We may also not experience rapid user growth or engagement in countries where, even though smartphone penetration is high, due to the lack of sufficient cellular based data networks, consumers rely heavily on Wi-Fi and may not access our products regularly.

> Snapchat is free and easy to join, the barrier to entry for new entrants is low, and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old.

> This demographic may be less brand loyal and more likely to follow trends than other demographics.

> For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period.

> Our Daily Active Users may not continue to grow. For example, although Daily Active Users grew by 7% from 143 million Daily Active Users for the quarter ended June 30, 2016 to 153 million Daily Active Users for the quarter ended September 30, 2016, the growth in Daily Active Users was relatively flat in the latter part of the quarter ended September 30, 2016.

Worse still, Instagram is on a collision course with SnapChat [1].

> Mark Zuckerberg talked about the long-term strategy for Instagram’s growth, and the fact that in a few months, the company created a new product identical to Snapchat’s Stories that already has more than the 110 million users as Snapchat’s entire app is reported to have:

>> Over the next five years, we’re going to keep building ecosystems around our apps that a lot of people are already using. Growth and engagement on Instagram have been strong. We announced in December that Instagram now has over 600 million monthly actives and recently passed 400 million daily actives. Instagram Stories reached 150 million daily actives just five months after the launch, and we’ve added new features like Boomerang and Live into Stories and I’m excited to see that continue to grow.

While the numbers are impressive, it seems they may already have plateaued. Nothing wrong with that--if the addressable market is limited, it limits them too. However, the problem with a plateau is that everyone starts eating into your stagnant market share. Adding premium services results in higher churn. Adding advertising results in higher churn.

Remains to be seen if they can double down with the IPO capital injection but so far we haven't seen much beyond the gimmicky SnapChat Spectacles.

  [1] https://qz.com/901289/facebooks-fb-earnings-call-revealed-zuckerbergs-plan-for-taking-down-snapchat-before-its-ipo/

Wasn't twitter also measuring success in number of users and growth, marginalizing their losses?

For now it seems like they're still only a picture-sharing app that's popular right now. Obviously they're doing a lot to secure this position, but I wonder if they'll be able to maintain user's engagement for a longer period of time.

You are correct. I think they also shifted from daily active users to monthly active users to mask a decline in daily usage.

Very interesting to see what they think of their competition:

> We face significant competition in almost every aspect of our business both domestically and internationally. This includes larger, more established companies such as Apple, Facebook (including Instagram and WhatsApp), Google (including YouTube), Twitter, Kakao, LINE, Naver (including Snow), and Tencent, which provide their users with a variety of products, services, content, and online advertising offerings, and smaller companies that offer products and services that may compete with specific Snapchat features.

> For example, Instagram, a subsidiary of Facebook, recently introduced a “stories” feature that largely mimics our Stories feature and may be directly competitive. We may also lose users to small companies that offer products and services that compete with specific Snapchat features because of the low cost for our users to switch to a different product or service.

> Many of our current and potential competitors have significantly greater resources and broader global recognition and occupy better competitive positions in certain markets than we do. These factors may allow our competitors to respond to new or emerging technologies and changes in market requirements better than we can.

> Our competitors may also develop products, features, or services that are similar to ours or that achieve greater market acceptance. These products, features, and services may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies.

At least they're honest! Maybe it's the sector I'm in, but I rarely see this kind of candor in my sub-field of technology...

I feel like S1 filings are always brutally honest like this. I believe it's a legal thing, they are afraid of future suits.

I hadn't known this! I definitely need to start reading S-1 filings for companies I'm interested in; I'm still an amateur at a lot of this...

They are required by law to disclose this in SEC filings

Someone correct me if I'm wrong, but aren't they legally required to disclose this kind of information? Couldn't it could be considered misleading investors otherwise?

This probably has more to do with anti-trust concerns. They don't want to appear as a monopoly to regulators.

No, they are legally required to or could potentially be sued by investors for misleading

> Although other U.S.-based companies have publicly traded classes of non-voting stock, to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange. We cannot predict whether this structure and the concentrated control it affords Mr. Spiegel and Mr. Murphy will result in a lower trading price or greater fluctuations in the trading price of our Class A common stock as compared to the trading price if the Class A common stock had voting rights. Nor can we predict whether this structure will result in adverse publicity or other adverse consequences.

How does this differ from what Facebook and Google did? Did they offer stock that technically had voting power but in practice was massively outweighed by the founders' voting power? Whereas Snapchat is dispensing with such technicalities and just outright stating the founders control it?

When Facebook IPOed it had two classes of voting stock. Normal and super voting. They only offered the normal voting stock.

Facebook and Google both later offered non-voting stock, but not when they IPOed. Not sure if it really makes a difference overall, but unlike Facebook and Google there is no public Snap Inc. voting stock.

There is no non-voting FB stock yet. It's still tied up in a shareholder lawsuit.

In a way it is refreshing.

SNAP is coming out immediately and saying you are not going to have ANY say in how SNAP is being ran.

Facebook, Google and others have shown that general investing public does not care about having voting rights.

Why anyone would pay a similar price for non-voting stock versue a regular stock/super voting stock is something that I have trouble understanding.

I understand buying bonds, preferred shares, but this apparent anomaly in non-voting share pricing is beyond me.

In my view when you buy a share with diluted or non-existing voting power you are getting the worst of all worlds, no real say in the company and still you are the last in the line should something go bad with the company.

Basically you are placing infinite faith in those with the voting stock without any recourse. (Build a ten billion campus, sure, build a new base on the moon, build a mega dungeon, sure, etc etc)

Is there a good book out or coming out on the rise of non-voting stock?

Any resources fellow HNers recommend for understanding what value there is in non-voting stock?

My takeaway was that Snap has 1,859 employees... huh?

Why does a company with a single product, which is a mobile app (so what is that these days, three platforms?) need almost two thousand employees - am I missing something? No wonder they lost $514mil in 2016, that's an absurd amount of overhead for a company with a single, not very cumbersome product.

For comparison, Facebook had 3500 employees at the time of their IPO, and it's "just a website." Snapchat is many products: video ad platform, augmented reality selfie app, broadcast platform via sunglasses, photo uploading app, and messaging app.

do we really want to get into this discussion?

whatsapp had what Facebook had ÷ 100.

According to the Forbes story [1][2] on WhatsApp's beginnings, the founders didn't focus on marketing. The app's features alone sold it plenty -- and the fact that the app was sold for real money helped them pay the bills. Furthermore, they intentionally limited the product's early memberbase to avoid scaling too fast for their resources. In other words, if the story is to be believed, they ran a pretty tight shop.

I'd imagine that someone like Facebook, Twitter, Snapchat, etc, who makes the product at available $0 and has to devise a monetization scheme later will need to employ a fair amount of "soft skills" staff who can forge relationships with, say, advertisers, and gobs of staff to work on features, stability, capacity to achieve a point where their platforms attract and retain eyeballs. These are the sort of companies where an injection of VC money to rapidly scale is beneficial such that the product can achieve monetizable critical mass, to fill out the part between "2. ???" and "3. PROFIT!"

[1] http://www.forbes.com/sites/parmyolson/2014/02/19/exclusive-...

[2] without paywall: https://www.quora.com/How-was-WhatsApp-built

Whatsapp was also never profitable either. They almost didn't even bother to make money (the subscription thing is a misnomer since they waived it left and right).

And by their own admission, they intentionally tried to slow user growth.

What I'd like to see - is the employee breakdown.

How many are working on the acutal product/engineering?

I work for a startup (that was bootstrapped I believe) and our sales team is almost half the company (we are just under 100 people right now).

Point being, at Snap's scale - I have a feeling they'll have a lot of Business Development Reps trying to bring in contracts for adverts.

Sales & Marketing expense was $124M, they spent ~$9M on advertising, so ~$115M on sales and marketing, and $183M on R&D (engineering).

So about 61:39, eng:sales, if you were to assume wages were equal, on average.

Yeah, thats what Im interested in too. have to assume there is a significant sales force, especially with their expected sales growth

Since both of you assume that, we'll assume it's true for the moment. In that case, in order to scale their sales, they have to do it by an industry benchmark unless proven otherwise. The industry benchmark is about linear scaling of a sales force.

Actually, a more accurate calculation is much more complex. It's also almost impossible to figure out accurately unless they release certain data - which I guess they won't do.

Good luck with that!

The cost they list for research and development compared to e.g. marketing gives you an idea.

This is also my gripe with Twitter. I just don't understand the necessity of having so many employees as software businesses allow you to build tools to reduce the number of employees you need in a way other businesses can't.

I know it's a very poor parallel, but WhatsApp's sub 50 employee group around the time of acquisition was just so impressive in comparison with the size of some of these businesses. It was just orders of magnitude different. That being said - I agree with ohstopitu - I'd love to see a breakdown of who goes where...

via Linkedin...

Sales Managers, Sales Directors, Senior Sales Mobile Specialist, Sales Finance Manager, Senior Sales Manager, Sales Operations Manager EMEA, Agency Sales UK, Sales Manager Continental Europe etc etc

Account Managers, Account Directors, Agency Account Manager etc etc

I've never spoken to anyone at Facebook on a phone - but have spent a substantial amount of cash on the platform. On Twitter when we setup - there was onboarding, performance checkins etc - the biggest difference though we couldn't get an ROI from the platform (This was 2 years ago though so things may of changed?).

Expanding business without an actual person doing it (inbound marketing) is cheap, but very slow going. Twitter probably has people making deals, helping bigger accounts work on their presence, and things like that.

I'd imagine they have:

- A significant number of engineers to build/run/maintain their application.

- A large(r?) number of sales/business folks to sell filters/advertising/promotion.

- A smaller number of accountants to handle the money.

- A large number of managers to manage the engineers, accountants and business folks.

- A moderate number of HR/recruiters to find more staff.

- A few people to handle various operations stuff (legal teams, people to deal with law enforcement requests and subpoenas etc.)

When you start to get big there's a surprising number of things you need to do.

They just built a hardware product.

Also: all the stuff we haven't seen yet... who knows what they are doing with the vast amount of video data piped to their servers every second.

Being generous, 5 employees for hw + 5 for manufacturing should be more than sufficient for a pair of sunglasses that takes 10 second videos.

That is not how hardware works.

At least 2 EEs, another couple EE techs to fix prototype up boards that come in and prepare development boards for the software work.

You will have a couple people doing just regulatory work. Sign off on BT, USB, batteries, etc.

At least 1 ME, at least 1 industrial designer as well. 1 person in charge of optics.

1 software person to do board bring up, another person who specializes in Bluetooth because Bluetooth is a nightmare and you will have to work around different bugs on iOS and Android. Finally someone to do the actual firmware. You may get away with just 2 people, or you may need more, depending.

Someone had to design the box they come in.

The vending machines likely had a team behind them as well.

Then there is the marketing of the product, the glasses went viral fast, there was a team of people responsible for that.

And once all that is done, now you need a manufacturing team.

If the team was incredibly agile and efficient, maybe 20 people at the bare minimum.

double at least for redundancy to cover holiday/sickness/bus factor

Having worked on an agile HW team, I'll say that the bus factor was a solid 1 all throughout. In fact the bus factor was a whole lot of different 1s!


Did you read what the parent said? That is not how hardware works.

Yes it's easy to build a single device... successfully scaling it to millions of devices is the hard part.

Also: "100x the resolution?" You obviously have no clue.

Why don't you? Otherwise shut up.

> Always the HN expert to wag the finger.

Says the expert with nothing to support your assertive claims.

It works out to be $230k p.a of revenue per employee, which is on par with the better larger SaaS co's like Atlassian and Github .

The employee counts of the later don't get a second look on HN, and they aren't growing at 6x revenue (or whatever it is) like Snap is.

If there was an article like this about those companies, I would absolutely expect this exact "what do all those employees do??" comment. This just seems to be a meme on HN in general at the moment.

It's honestly naive and lazy to view Snap as "just an app company". It uses the same flawed logic as "Facebook is just a website".

Snap is a media platform that comes with all of the overhead of running a global, culturally sensitive media business. There's user generated content at the center, but there are also a lot of partnerships, curation, etc going on too.

Depends what is considered as employees. I believe a lot of people are hired as artists, etc. for small items such as geotags.

That's $10 million per employee (at a $20B valuation). That's not a lot of when you consider they're building a product that will book billions of dollars in advertising revenue.

$400 million USD total revenue in 2016 (from the article) is not exactly "billions of dollars".

But, in general, yes, I think the sales force required to engage advertisers should not be discounted when the first thing going through the head is "but it's just an app!".

Not sure why you're getting downvoted.. they'll clearly have billions of dollars in revenue within the next 3ish years.

> We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.

Also having only 158 million daily active users up from 150 million in June is definitely interesting and a lot smaller growth jump than I had expected.

Revenue up from $58MM in 2015 to $405MM despite a loss of $515MM last year. Wishing them best of luck, but I wonder how much their competition is hurting their growth (Instagram stories for example)?

Also: > We are not aware of any other company that has completed an initial public offering of non-voting stock on a U.S. stock exchange. We therefore cannot predict the impact our capital structure and the concentrated control by our founders may have on our stock price or our business.

Hmmm... will be interesting...

158M DAU is not bad, but I would guess they are to some extent limited by the amount of iOS and Android devices in circulation? How are they going to get that number to 300M, or 500M? My best guess is they won't, ever.

Facebook has over a billion mobile DAUs.

There are a lot of reasons that Snapchat might not grow. Lack of people with smartphones isn't one of them. I don't think you have a good understanding of just how ubiquitous iOS and Android devices are.

I once bought a $5 candy bar style feature phone with what appeared to be a 128x128 pixel LCD display, and it came out of the box with Facebook. Facebook is not limited by the number of ultra-high-end smartphones in circulation.

They are hardly limited by that.

There were over 1 billion active iOS devices globally according Apple Q1 2016 report [1]. Android has even more.

[1] http://www.theverge.com/2016/1/26/10828134/apple-earnings-re...

Just a few ideas: on iOS, the app requires at least iOS8. I dare bet more than half of those active devices won't be running at least iOS8.

Second, you also won't convert 50% of those iOS users to use one app. Just not going to happen.

Do you honestly see Snapchat growing to 300 or 500 million DAU?

The iPhone 4 is the newest iPhone to not get iOS 8. That's going all the way back to a phone released in 2010, nearly 7 years ago. There are definitely a few out there but I'm not sure it'd be more than half running <= iOS 7, especially when you consider how strong Apple's update numbers are.

In fact, according to a marketing company, as of March last year, only 37% of globally active iPhones were even as old as a 5S [1]. Even the iPhone 4S, which did get iOS 8, was on just 5%.

Even if that data is skewed towards newer phones due to the type of sites they market on, it's unlikely that anywhere near half of active devices are running a software version over three years old.

Also, the App Store offers you the last compatible version of the app if your device isn't up to date, and it's possible that that version of Snapchat is still capable of showing ads, although I don't have one around to test it.

[1] http://www.adweek.com/digital/data-37-of-global-iphone-users...

> I dare bet more than half of those active devices won't be running at least iOS8.


Looks like ~94% of users are on iOS 9 or iOS 10.

> you also won't convert 50% of those iOS users

There's more than 1.5 billion Android phones. You don't need 50% of iOS to get to 500M DAU...

Yeah I'm not so surprised by that, as much as I'm surprised by the 8MM user growth from June to now. That's what's seems weird to me. Is that not indicative of a plateau?

I didn't actually read that part. If they only added 8MM DAU from June -> now, then it deserves to tank on its first trading day. Sounds like a decent short actually, once it cools down.

Why would it tank based on numbers available BEFORE it IPO's? I know there are idiots out there but surely the big investors are going to take figures available in the filing into account.

Well, it could go the Facebook route. Remember when FB was going to IPO at $33 a share and then it went up to $38 - it had a P/E ratio of like 100. People could just get excited about Snapchat being the next Facebook, it could go up with initial excitement (not saying all people, but markets are fickle). I guess we'll see what the price per share is.

Much greater losses than Twitter's S1. Snap's revenue is 27% higher but 548% greater net losses.

Twitter s1: https://www.sec.gov/Archives/edgar/data/1418091/000119312513...

Also quite expensive in terms of trailing sales multiple.

> Twitter went public at valuation around 30x trailing year sales and 15x forward year sales. At $25 billion, Snap would be valued at a huge 62x trailing sales.

> Assuming they could reach $1 billion of revenue in 2017, the 25x multiple would still be steep relative to the two predecessors.

(via http://blogs.wsj.com/moneybeat/2017/02/02/snaps-ipo-filing-e...)

I think their losses can be at least partly explained by their somewhat inexplicable number of employees, which happen to number 1859 at the end of 2016.

Don't understand why a company with a mobile app as their sole product need that many employees. I was expecting that number to be more like 100.

I'm always a little surprised about how naive HNers are about corporate sales (and BD). We can bikeshed all day how many engineers they "really" need, but for $400m in annual revenue (plus that growth) they probably need a 400 person sales org minimum.

I'm wondering where the loss is coming from. I'm skeptical that it's all coming out of the cost of infrastructure and workforce. I know they've had some company acquisitions in the past, so I wonder how that is coming into play.

400 million a year to Google and then who knows how much more on AR/VR stuff.

Well, they do have 1859 employees. If you say on average they're paid $50k each (totally made up estimate, would love for someone to give me a better one), that would be almost $100mil a year in base salary alone.

I would 2.5x that estimate and with benefits etc, round it up to total cost $200k per employee.

Keep in mind it's highly unlikely that all of those employees are engineers, probably lots of sales/marketing/customer service people. Still, with benefits and stuff I'd estimate maybe 100k per on the low end.

...and TWTR isn't doing so well

Which could in part be because of Snapchat, if we're being honest.

I'm surprised by the number of comments about how much money they've been losing. Their finances right now are completely irrelevant to their eventual success or failure. All that matters is getting a huge number of highly engaged users.

The attention of many hundreds of millions or billions of people is a very valuable resources that they will have no problem selling. Keep in mind that there is a limited amount of human attention in the world, and it's a zero-sum game to control it. As Facebook has discovered, owning a huge amount of attention gives you a ton of leverage over advertisers who want to buy it. Being in the long tail of smaller attention-holders gives you much less.

So Snap will either grow to compete with TV and Facebook as one of the top attention-holders, or else they'll fizzle out into irrelevance, burning through gobs of cash along the way.

I mean, sure, they could aim to be a nice $500 million company that builds a product that makes people happy and makes their employees comfortably upper middle class. But that's clearly not their ambition so there's no point in discussing their finances as if it were.

They spent $890,339 on security for Evan Spiegel in 2016? Why does he need that much security? Who is trying to hurt him?

"When Spiegel travels between his company's scattered outposts, he normally has a Range Rover with a private driver transport him from building to building. The former employee described it like the president arriving: a black car would pull up and Spiegel would hurriedly pop out with his security detail."


According to Wikipedia, he has $2b in wealth [0]. I have no idea whether $900,000 / year is high or low for someone of that net worth.

[0] https://en.wikipedia.org/wiki/Evan_Spiegel#Personal_life

And Facebook spends $5mn on security for its CEO and $1m for its CFO.


I would say that Zuckerberg is much more recognizable than Spiegel. Likely gets mobbed where ever he goes.

You forget to Spiegel is engaged to Miranda Kerr, supermodel and is likely to be super visible outside of work.

$1.3M for its COO (Sheryl Sandberg), not CFO.

True, sloppy copying. I guess the CFO is safe as long as the stock performs well :-)

Johnny Depp spends "Over $150,000/month on full-time security for his children" according to current revelations. So $900K/year for someone who's not very famous isn't unreasonable I suppose.

Johnny Depp is also in a huge financial hole for irresponsible spending... Not a comparison.

It's easy to work out the cost of full time security. Lets say you need 2 people on rotation, they do 12 hours per day each (doable because they get to relax while client is at home etc.) then multiply by a reasonable salary for skilled labor like 70k then you get to 140k per year per person easily.

$890k seems high in that for the previous year it was only $328k. I guess they had to triple everything for BCP.

Lots of Venice Beach locals are not happy that Snap is buying up prime property / increasing rents / bringing in yuppies etc. I wouldn't be surprised if he's received threats and is most focused on security while in and around the office.

Could also be that he's married to Miranda Kerr, so they have to deal with paparazzi

A lot of people want to punch that dude.


He's your typical unfiltered founder, which inevitably gets on people's nerves:



If making fun of windows phone is wrong I don't want to be right.

Those seem like normal things to say. He's obviously being facetious.

If Snap Inc. IPOs at their expected 25B value, Spiegel will be valued at nearly 5 billion (21% ownership), so ~1 million in security per year is not too far-fetched.

Why not just kidnapping insurance?

Maybe he doesn't want to be kidnapped in the first place...

Because he is not the most likable CEO and not everyone is looking for a payday.

I am merely pointing out that his security costs are negligible to him/Snap Inc based on their valuation.

Why not both?

Imagine the insurance premiums on that much wealth, without any security.


Grew by 3.4 employees per day last year. Can only imagine the challenges there in onboarding, maintaining culture and direction, etc.

Interesting DAU-growth plateau around the 150M user mark mid-2016. Maybe there is truth to the theories that Instagram is successfully slowing the drain of users to Snapchat?

Anecdotally I have seen a lot of people AND brands/public figures stop using Snapchat in favour of Instagram stories. Stories on each platform don't cross-post well (Snapchat for example puts a massive white border around posts from the camera roll) so it makes sense to commit to one.

Personally the thing that makes me use Snapchat less is the 'discover' stuff. 9/10 the stuff their promoting to me is top 10 type articles for teenage girls. I enjoy the Economist story but apart from that the rest is garbage. They could have a really nice media consumption platform their but they seem to be wasting it.

Which people and brands have you seen stop using Snapchat in favor of Instagram? Since you said you've seen a lot I'm expecting a list of at least 10. Thanks.

Could be equilibrium reached - market saturation. All those who will use it are now on it, and the only way to go is down as the Primary Users, err, grow up and their time and interests are spent elsewhere. I mean, it might sound terribly reductive but I kind of figure there's only so many teenagers at any one given moment, and growing rapidly into a dominant market share is wonderful until it isn't.

Am I reading this right? I'm no banker... Their losses for 2016 were ~$500m? That's very steep, but it looks like revenue grew almost 700%. Wow.

Insane numbers. I don't think anyone on the planet knows what's going to happen with them but I am sure interested in finding out.

$50 it'll tank like Twitter.

(And to the people downvoting me, please explain why you think it won't tank like Twitter - thanks!)

So why not short the stock? You will likely have to wait until after the IPO and may pay an arm and a leg for the privilege with limited initial float, but it's entirely up to your discretion. Even more appealing if snapchat does well on the first day of trading.

The same reason you don't use margin if it costs you 10% per year: risk vs reward and potential upside.

If you are as confident as you sound you may want to pay the 10 % annualized to short some shares, especially if it pops after the IPO.

I tend to get annoyed when people have extremely overconfident predictions yet don't act on them. Just responding to your parent comment, it's hard to tell how bullish your actually are on SNAP from a brief paragraph. I'm bullish also but won't touch the thing unless it gets into territory similar to GPRO.

Not bullish at all on SNAP at current valuations. It needs to drop significantly (i.e. more like an $7-13bn valuation, with good growth, and preferably $700MM-1bn in revenue) before I will consider buying in.

There are plenty of stocks out there with sufficient potential upside that I don't need to use leverage (either by borrowing at high interest on margin, or by borrowing and shorting expensive shares). Borrowing at low interest rates I will consider, but probably only for stable dividend shares.

I'm 90% certain that this won't be a killer IPO, if you look back 2 years after it floats. But there are sufficient interesting companies out there for me not to care about how it does, either way. Just putting it on my 'to watch' list.

Edit: thoughts on GPRO and TWLO?

GPRO was egregiously expensive post-ipo but shorting the damn thing cost an arm and a leg. I haven't followed TWLO.

Predicting the future is hard. If they raise enough money, they might figure out how to make profit better than twitter did. Frankly, I can't predict anything anymore, if anything, I'll say they will do well. The opposite of my gut feelings. I've been 100% wrong in all the startups I tried to predict, the last 5 presidential elections, my favorite NFL team prospects for playoffs. I'm just bad. I agree with you, but I'll invest if I had the funds. You might be logically rational, but there is a large part of the world that is not.

Question here is whether you'd buy them because they're a good company, or because you'd want to play the other chumps that believe they're a good company.

Twitter had a nice pop after IPO and while they're a fraction now of their IPO price, if you played the market well rather than the company, you could have come out well.

I think you might be right. I've long been bullish on Snap, but seeing their user numbers plateau this year has me reconsidering. 2016 was a year when they should have seen exploding growth among new user groups.

Perhaps, a bit like Twitter, there are only so many people out there who want the unique functionality that Snapchat offers.

That said, there are a lot of smart people at Snap, and they seem to have a culture that encourages imagining, and shipping, big changes to their core product. So they may be able to get things back on track.

But if they can't restart the growth engine soon I'll seriously consider shorting their stock.

Didn't downvote, but Twitter stagnated and there isn't any reason to believe Snap will too.

Social Media is about adapting to the changing trends, and for a while Twitter's strategy was to stay as close to it's core product as possible. Periscope is great but it came a little too late.

This is the reason to believe they'll stagnate:

"We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability."

Sooner or later, you run out of other people's money, and businesses which have no plan to be long-term profitable should not be.

Funnily, the way I see most people use Snap is "Twitter but video"

Their revenue ($400MM) is impressive for a messaging app, but honestly, the valuation it carries at this point is nuts. It's just an app and I personally don't believe it has a sufficient economic moat to justify that. Where's the ecosystem? How can we bolt on value from having that audience? Unlike Facebook, we won't have a billion people using Snapchat any time soon.

Then again, I didn't believe Instagram was worth $1bn when acquired either, and looking back, was wrong on that. But there's a massive disconnect between the current valuation of Snapchat, and the valuation of Instagram (when it was acquired).

>Their revenue ($400MM) is impressive for a messaging app

Compared to Line and Wechat its really not

You're right. I converted the Line Corp yen revenue number to USD, but looks like I missed a zero. Line has a market cap of $7bn, and does $1bn in revenue.

Insane is right. They lose that much money, and don't have a plan for profitability. If you lose money on each customer and scale the business...well, uh, losses scale too.

I guess I'm just old fashioned, here I thought the point of businesses was to make money, at least eventually.

This quote is a killer: "We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability." haha

All of the same criticisms could be applied to YouTube, Facebook, Instagram, etc while they were at that stage. Some turn out to make pallet-fulls of money, some (Twitter) never quite crest.

The quote at the end is just boiler plate language they need to include in their S1 so they aren't sued by shareholders in 10 years.

Pretty sure those other companies declared an intention to make a profit. Saying the opposite is indeed news.

And sure, the company might turn the corner. But seriously why would investors pay $3 billion with a pitch like this? I guess they're just playing other investors in the end. There seems neither money making capacity here nor the promise of it by their own admission.

Are you saying we should ignore their clear words on this topic and decide the management is wrong and they'll probably end up profitable?

It's a risk factors statement, not an intent statement. They also aren't seeking to have anything else in that list become true.

I use snapchat every single day. I know my friends who've moved off facebook and Instagram use it extensively too. Its the facebook for young people. No one I know who is under 20 uses facebook anymore. Mostly because their parents are on facebook. Snapchatters post a lot more stuff that they won't usually post on public social media. After 24 hours it goes poof.

I expect a dip after IPO and then a nice rise like facebook once they figure out how to advertise to the teens.

Worth a wait and then buy once all the adults think its worthless.

If you go to university, Facebook is inescapable. Every society, sports team, social event is organised through there.

> Snap Inc. is a camera company

interesting statement from a company that just released their first camera (Spectacles) few months ago. i'm not sure if their users see them as a camera company.

Maybe it has to do with how investors view hardware vs. software companies. Social networks are much more volatile than hardware products and hardware companies are more stable.

Of course, labelling themselves as camera company isn't going to fool HN, but it might be viewed in a different light by investors.

I'd rather be seen as the next big social network than the next GPRO

Why can't a camera be software? Top 5 cameras on Flickr are iPhones. Software is eating the world, including photography.

The iPhone is not software.

the default camera on iphone is used synonymously

This line was included to convince investors they have product vision considering that until Spectacles they were completely locked into Apple and Google's mobile platforms. Presumably some type of light sensing device will always exist. Will they become a product company that makes per unit margins? Maybe not.

I don't know though - they have strongly differentiated camera software and you see recognisably Snapchat pictures all over social media. Along the same lines, compare Faceboook's idea of what a camera in their app should be and you'll see a blatant copy.

"We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability." haha

This is boilerplate S1 language.

Unless I mean, you're profitable

I know 'burn the heretic' haha its just a concept

May I ask why? What would companies get out of doing that?

There are a lot of laws and regulations around advertising stock for sale to the general public (as opposed to qualified private investors).

Companies have to be very conservative but thorough in the "Risk Factors" section, or get sued by investors claiming to have been misled later.

For example some of Google's Risk Factors from 2004:

> New technologies could block our ads, which would harm our business.

> We generate our revenue almost entirely from advertising, and the reduction in spending by or loss of advertisers could seriously harm our business.

> We are susceptible to index spammers who could harm the integrity of our web search results.

I imagine it's a legal disclaimer. Same reason every investing prospectus in existence says "Past performance is not a guarantee of future returns"

Are there legal implications if you use language like "we _hope_ to get to a profitable stage within one year"?

It's more that there are no upsides (saying "hope to" doesn't sound very certain, so no one is going to increase the price they'll pay for your IPO shares) and there are downsides if you don't become profitable within a year, once you've said you hope / intend to. So, the bottom-line incentives are not to say it.

It's not like they could claim anything else. No company can guarantee that it will remain profitable.

"There's a sucker born every minute" didn't enter the American lexicon by accident, mind you.

It's great to see both founders ( Evan and Bobby ) ended out with equal shares, both at 21.8% of Common A Stock. The history is pretty interesting, and as always there is a possible 3rd founder. https://techcrunch.com/2013/07/31/spiegel-murphy-say-alleged...

Why is it great? It seems a super low probability that both founders deserve exactly the same compensation.

Spiegel gets an extra 3% for the IPO.

> For the year ended December 31, 2016, we recorded revenue of $404.5 million... For the year ended December 31, 2016, we incurred a net loss of $514.6 million

> We have three classes of common stock: Class A, Class B, and Class C. Holders of our Class A common stock—the only class of stock being sold in this offering—are entitled to no vote on matters submitted to our stockholders

Is the monthly revenue growth rate in there? I can't find it. To me that tells the story of whether it's a buy or not (for the mid term).

Small question, but is it normal to leave the numbers blank when it comes to share-percentage or number of shares rewarded to the founders in the Risks section[0]?

[0]: https://www.sec.gov/Archives/edgar/data/1564408/000119312517...

"We are required to purchase at least $400M of cloud services from Google each year beginning on January 30, 2017..."

Wow, quite a snag for Google Cloud Platform to land that contract!

OK, their dirty laundry is about what I would expect it to be. They are required to list these things at this point to avoid being accused of hiding information later.

Given all this, are you buying? If you owned stock day 1 would you sell it?

Personally, I'd sell immediately. I don't trust tech stocks; they're consumer discretionaries (or media stocks?) but more volatile, and any one of them could suffer the fate of Sun or Iomega at any time. If you gamble and win, you can make a fortune, but if you gamble you're more likely to lose; there are more reliable profits to be made elsewhere.

(But I don't short any tech stocks, even though they don't normally pay dividends; all you have to do is short the next Microsoft once, and then you're selling your house a decade down the line. I prefer to let other people do the gambling, in both directions, while I look for safer things. Similarly, I have no exposure to biotech, the other gambling part of the market.)

> We rely on Google Cloud for the vast majority of our computing, storage, bandwidth, and other services. Any disruption of or interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our business.

Over-under on how much of their cost of revenue goes to Google App Engine?

"The launch of Spectacles, which has not generated significant revenue for us, is a good example. There is no guarantee that investing in new lines of business, new products, and other initiatives will succeed. If we do not successfully develop new approaches to monetization, we may not be able to maintain or grow our revenue as anticipated or recover any associated development costs, and our business could be seriously harmed."

I don't think anyone expected Spectacles to be a cash cow, but I still would have expected a more positive outlook on them.

They're probably more of a shot at creating lock-in than a profit center.

They certainly are, you flat out cannot use Spectacles without opening the Snapchat app.

What's up with the massive negative gross margins? Will wall street glance over those? Is there any precedent for a company going public with such upside down financials (putting growth aside)?

Serious question: how does Snapchat spend so much money on infrastructure? How could the app run up a $2b Google Cloud tab? Would anyone care to break it down?

My guess would be the huge compute power needed to transcode that much video.

and storage, i'm guessing

video transcoding wouldn't it be better on FPGA or some DSP? and storage - compression? I mean are all those images that different from each other? Different people make photos and videos of basically the same stuff.


At that scale (160M active users [0]) I guess they could easily develop and run their own infrastructure. $2bn just screams 'inefficient implementation' to me... I could be wrong though.

[0] https://techcrunch.com/2017/02/02/snap-ipo/

If I am the May 2016 investor, I'm thrilled that I got to see how the company grew for a year and a half, while still paying the same price as the Feb 2015 investor. Snap might have provided other incentives to investors early in the Series F round, or they were just happy to get invited to the party.

It doesnt make sense that it would be worth more than twitter or even instagram. Even if ads are more effective, there's 5x the interest to advertise on those platforms than snap (https://www.google.com/trends/explore?q=snapchat%20ads,twitt...). I say its worth more like ~3B market cap

Part of this can be explained by Snapchat not having a self serve product (AFAIK) so a lot of the search results might be individuals/smaller businesses looking for help/advice to get started. I know the major brands are spending fairly significantly on Snapchat and doubt they contribute much to the Google trends data.

So what's the transition time from an S-1 to being able to buy shares. Does it mean the stock will list tomorrow?

A month or two. I'd wager 6 weeks.

The S-1 is for the roadshow to create the underwriters and syndicate. They want to study our reactions and other people's reactions to see how they can price the shares.

It is all about perception at this point. Share value number should go up.

Snap Inc. is a camera company.

Still don't use the native camera on Android.

You don't understand. They're a camera company.

Like, making actual cameras? I don't use Snapchat, but would that just be a regular camera with filters?

They have "made" cameras before, one was a pair of sunglasses iirc.

But still. Make that your slogan?

See Spectacles (and whatever else they have in store)

> For the year ended December 31, 2016, we incurred a net loss of $514.6 million, as compared to a net loss of $372.9 million for the year ended December 31, 2015. Some serious progress there. Great. Let's IPO O_o

gotta strike while the iron is hot

Net loss about 500 million at the end of 2016 which is about 100 million more than the year prior. Yikes. Still they'll likely make the case that they can turn a profit in the not-to-distant future.

It s going to be tremenous success. I ve never even seen the app, let alone used it, but its the times we live in.

I wonder if Snapchat is still using AppEngine. I'm pretty sure they were 50%+ of the AE traffic at some point.

I know googlers used to needle the AE SREs by calling them "Snapchat SREs"

Fate will be similar to the Twitter stock

Your pension funds at work, people.

When are they going to be on Nasdaq? I'm not sure where to find this info.

Never. They're on the NYSE.

Oh, I see. And when are they expected to enter the market?

They plan for sometime in March.

I'll never complain about writing a SOW ever again.

Snap is a company that doesn't know Oneself.

What a shit design of this page.

I know - it's fully searchable, everything easily accessible. What were they thinking?

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