Keep Calm and Snap On

Posted: August 18th, 2017 | Author: | Filed under: facebook, Investing, snapchat | No Comments »
Keep Calm and Snap On

Keep Calm and Snap On

 

Snap has released their Q2 results. If you trust the pundits, it was “another failure on a long, downward path for the social media company.” Impatient journalists and those on Wall Street seeking the quick buck aren’t happy. The buy-and-hold types have a lot to be happy about.

The Good News

  • Daily Active Users grew 21% year-over-year from 143 million in Q2 2016 to 173 million in Q2 2017. An increase of 30.5 million users. For the quarter, DAUs was up 4.2%, adding 7.3 million users.
  • Average Revenue Per User grew 109% year-over year from $0.50 to $1.05. ARPU increased 16% over Q1 2017 when ARPU was $0.90.
  • Total revenue grew 153% year-over-year and up 21% from $149.6 million in Q1 revenue to $181.6 million.

Snap is growing in every way an investor would like (although not at the pace the greedy would like to see). The real story is the product evolution. Snap released 16 versions of Snapchat in Q2 compared to Facebook’s 6 releases. Not only is Snap moving fast with quick releases but some of the releases had massive features. Snap Map, a way to see where your friends are and what is going on at specific locations, was released in Q2 and well received. There has been much written about Snap being copied but Snap moves too fast. You can’t copy their soul.

Misunderstood – $FB vs $SNAP 166 Days Post-IPO

Snap isn’t the only tech company that was underwater 166 days after their IPO (the day of this writing). $FB IPO’d at $38 and closed down 42% from the IPO price at $22. $SNAP IPO’d at $17 and closed down 23% from the IPO price at $13. The $SNAP doomsayers emphasize the risk of losing top talent when the stock temporarily underperforms. $FB was able to weather a tougher storm than $SNAP is going through. If an employee is swayed to leave by short-term stock swings they are not buying into Snap’s potential like they should. They don’t get it, just like a lot of those on the Street.

After Facebook’s first two earnings reports the Street continued to be concerned about mobile monetization. Facebook had just started their mobile monetization efforts and the rewards were inevitable. This is similar with Snap. Some want revenue to grow quicker than it is but Snap just started to monetize. This will take time.

Analysts continue to speculate on User Growth, Revenue and Profit/Loss despite lack of guidance from Snap. Snap will “miss” these numbers and the market will respond (in the short-term). This is because Wall Street doesn’t understand Snap’s User Growth will not be like Facebook’s. Snap is for the savvy, smartphone owning, high speed bandwidth users. Facebook, with web apps, mobile apps on every platform, “Facebook Lite” etc, is for everyone. Snap is unlikely to have the 1.35 billion DAUS that FB has anytime in the next decade. Snap won’t dominate the masses but it will dominate the critical 18-35 demographic for sometime.

Bottom Line

Facebook is where the puck is. Snap is where the puck is going. User Growth for Snap will continue to feel the headwinds until the rest of the world catches up with high speed bandwidth. Snap would have to compromise the product too much to appeal to the emerging markets and it’s not worth their time in the long-run. Snap’s play is to continue to evolve the most modern social media app for the young and savvy. Continue to take advantage of the latest and greatest in tech and monetize those savvy users with deep pockets.

Snap’s market cap is currently ~$16 billion. Napkin math says Snap would need to get to 200mm DAUs at $20 annual ARPU for yearly revenue of $4billion and profit margin of 25% to justify that valuation (that would be a PE of 16). Despite being 5X away from that ARPU number, those seem like a layup for Snap. Someday we’ll look back at the market’s response to these early earnings reports and laugh, just like we do with Facebook now.


Young Users

Posted: March 31st, 2016 | Author: | Filed under: facebook, Product, snapchat, Uncategorized | Tags: , , | No Comments »

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Old habits die hard. As you get older your mental models of the world become more rigid. You know what you know but ya start becoming closed off to trying new things.

People making products, especially products with a shitload of users, run into this all the time. As processors and cellular networks improve, new features are possible but people are stubborn, they like the way they do X and they’re not trying to change it.

Facebook, with over a billion users, has a tough task on hand. They don’t cater to the lowest common denominator but they don’t cater to their advanced, or power users either. This means Facebook doesn’t release the most advanced product they can, Facebook makes concessions so they can release a product that will be widely used.

Snapchat, on the other hand, is doing an excellent job of capitalizing on bandwidth and smartphone improvements. “Stories” – a mixture of photos and videos that users create using the editing tools Snapchat provide are a perfect example of this. When Facebook came out, sharing videos was a pain in the ass, it was slow and cameras weren’t readily available. People form a mental model around what Facebook is as they use it and when things change it becomes difficult for companies to break out of the box their user base sees them in.

Facebook has done a great job pushing against that tide and have made huge inroads with videos, some say they’re even surpassing youtube, but taking a video of yourself and uploading it to Facebook is not the ubiquitous behavior you see in Snapchat.

Snapchat has a much younger and more open minded user base and this allows them to be more aggressive with their product. When Snapchat Chat 2.0 was released on 3/29 I was curious if they were going to push the envelope in the chat game. Sure enough, they delivered.

The chat game is crowded, as I pontified on before. It’s hard to make inroads but one of the ways to get started is to piggyback on your social network’s user base. Unlike Facebook and Instagram that have public ways of giving props, Snapchat lacks this which encourages users to send a chat if they like a Story or have something to say. It’s funny because, like the name implies, Snapchat started off as an ephemeral chatting app, evolved into a Social Network and is now getting back to its roots and beefing up its chatting abilities.

It’s one thing to release cool features it’s another to have them be used. At 33, most of my friends will be reluctant to embracing the new features. The majority in my age group insist on using feature-poor iMessage or SMS. Luckily I’m on the older side of Snapchat’s user base. Snapchat Chat 2.0 will be immediately embraced by their users. For whatever reason I find the stickers lame (too old?) but I look forward to seeing my (younger) friends live stream, create small gif-like videos, annotate em with Snapchat’s editing tools, audio notes and more.

 


Yentas, the Messaging Gold Rush

Posted: January 19th, 2016 | Author: | Filed under: facebook, messaging, Product | Tags: , , | 1 Comment »

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We’re all a bunch of yentas and inventors from Samuel Morse to Alexander Graham Bell to Brian Acton (WhatsApp) have made a ton of money making it easier for us to chit chat. Communication is a time-tested gold mine that’s changing with the rise of new paradigms (like smartphones). With so much at stake, we’re experiencing an intense battle between all sorts of players vying to solve our messaging needs.

To name a small sampling ya got iMessage, WhatsApp, Facebook Messenger, GroupMe, Line, Viber, Kik, Tango, Skype, Slack, Google Hangouts (Gchat), Tencent QQ, Snapchat etc etc etc. They all have different twists to them but the general use case is the same: help people directly communicate.

These players differentiate in a few key ways:

Communication styles is the first way these messenger services start to differentiate. People like to communicate differently depending on where they’re at and what they want to say. You have short text (SMS-style), longer texts, pictures, videos, gifs, voice, ephemeral messaging, and who knows what will be next…VR videos?

Cross-platform is a big differentiator in the messaging wars. Many of the newcomers are smartphone only (iOS and Android generally). Skype crosses a number of platforms (Windows, OS X, Windows Phone, iOS, Android, Blackberry OS). This cross-platform support ensures the vast majority of computer and smartphone customers can use a messaging service conveniently on the device they have on them.

Interoperability is the next decision all of these messaging services wrestle with. The majority of the popular ones are single-protocol –i.e. ya gotta be on Google Hangouts to talk to others on Google Hangouts. When you go multiprotocol, you allow your users to talk to people outside of your messaging service.

Deciding how to approach each of these areas of differentiation can be a challenge, and implementing too much can slow down your ability to do anything cool. Supporting multiple communication styles adds complexity to both the code base and the UI. More communication styles limits what platforms you’ll be able to support with parity. A cross-platform strategy adds complexity to the development process — instead of building a feature once you build it per platform. Supporting multiple platforms can affect your ability to support these features and can result in a “lowest common denominator” type effect if you want a consistent user experience. Same thing with interoperability, you ultimately hinder your ability to support numerous protocols well (e.g. if you want to use SMS, you’re limited to 160 characters).

In the messaging game, getting better distribution (cross-platform, interoperability) makes it harder to do cool stuff. If you want that premium, cutting edge experience, you go for the 80/20 rule when it comes to cross-platform and not worry about interoperability.

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Of all these players, I’m digging Facebook’s approach. They have two massive horses in the race with WhatsApp and Facebook Messenger, which allows them to try out different strategies that will capture different segments of the market. WhatsApp is all-in on the cross-platform strategy and removing the $1/year fee removes the remaining friction there to get on WhatsApp. Sure, the experience won’t be great and definitely won’t be consistent for all users, but WhatsApp will continue to capture the low-end market where people want a cheap way to chat.

Facebook Messenger is going for the premium experience and taking the platform route. It’s single-protocol, it’s got a web presence and is on the major mobile platforms, but it’s focusing on the cool things. More importantly, Facebook is empowering other devs to do cool things within Messenger.

In the messaging space, being the best of breed might not mean squat. The network effect is too important, you go where your friends are. I love Facebook Messenger but I gotta admit, I’m a iMessage, Google Hangouts, email, SMS (non-iOS users) Facebook Messenger, Skype, WhatsApp kind of guy, in that order. I may like Facebook’s strategy the best but I go where my friends are.