Oh Snap!

Posted: May 18th, 2017 | Author: | Filed under: Investing, Product, snapchat | No Comments »
Snap’s first earnings as a public company are in and there is a consensus! Snap’s first earnings are terrible and the company is a disaster. Or is it? Do we care about the opinions on Wall Street trying to earn a quick buck? Or click-bait journalists looking for impressions? Those investing in $SNAP must have patience, and if you do, there is a lot to be happy about in this earnings report.

Snap missed DAU and Growth Numbers!

What did Snap miss? Expectations set by bozos on Wall Street? Evan and the leadership team didn’t set guidance on revenue or DAU growth. Analysts on Wall Street made numbers up based on little precedent. Snap didn’t miss a thing.
 
Snap’s user base grew 36% yoy to 166 million. Quarter over quarter, Snap grew 5%. This is consistent with quarter-over-quarter growth from Q3 to Q4. Instagram Stories may have slowed down growth but Snap is growing at a healthy pace.

Snap missed Earnings with a whopping $2.2 billion loss!

Again, this is Wall Street expectations. $2 billion of the $2.2 billion loss was due to a one-time impact of stock compensation. I’m much more concerned with ongoing costs.
 
The flip side is Snap grew revenue yoy 286%. ARPU tripled yoy to 90 cents per user globally. North America monetization is at $1.81 a user and they’ve only scratched the surface. For comparison, Facebook is approaching $20 in ARPU. It’s encouraging to know there may be a long ways to go before we see a slowdown in ARPU growth with Snap.

Evan is selfish!

Another common theme is Evan is selfish. The $750mm bonus is evidence A. It’s quite the opposite in my book. Evan has turned down offers to sell Snap and could have been a billionaire years ago. Instead, Evan has shown an ability to delay gratification and plan for the long-term. This is why investors of Snap should be patient. Others in Evan’s shoes may resort to growth hacks to appease Wall Street. Evan keeps the big picture in mind. Evan dismisses short term thinking that doom companies in the long run.

Bottom Line

Expecting ~10% DAU growth and profitability from Snap this quarter was unreasonable. Evan is playing the long game with Snap and part of that approach is not optimizing for the short term. Snap is a product company investing money into R&D to grow and monetize. Instagram may have copied the story format but Snap is more than that. Snap is a different context to its users. Snap will morph in ways we can’t imagine. You’ll need patience if you want to buy and hold $SNAP but with that patience will come great reward.

The B2B Gold Standard

Posted: December 19th, 2015 | Author: | Filed under: Investing, Product, SaaS | No Comments »

Atlassian Logo

I can’t believe it, I’m excited for an IPO for a B2B company. Maybe the past 10 years working at B2B companies has poisoned my brain but I’m hoping it’s because Atlassian is something special. Companies like SalesForce and Workday have killed it on Wall Street but I never had any interest in throwing money at them. I like to invest in companies in which I’m intimately familiar with their product, companies that are profitable and are led by founders who care. I haven’t found a B2B business that fit those requirements but Atlassian is a different beast.

The money most SaaS companies put towards marketing & sales boggle my mind. The majority of SaaS companies spend 2x on marketing & sales compared to product & engineering. For every buck put into making the product better, these companies are spending two bucks to get the word out and convince customers to fork over the dough.

Bucking the norm for SaaS, Atlassian has been profitable since year one (Note: Atlassian isn’t a true SaaS company since they allow customers to host their software). Thirteen years in, Atlassian continues to make more than they spend. The margins aren’t anything to brag about but at least they exist and Atlassian still has the killer revenue growth people expect from SaaS companies.

I’d imagine part of the reason Atlassian has been able to turn a profit is its small marketing & sales spend. Atlassian spent 21% of its revenue on marketing & sales in the first half of 2015, 16% in 2014 and a mere 12.5% in 2013. In comparison, Box spent 200% of their revenue on marketing & sales in 2013, Salesforce spent 56% and the industry standard is around 50%.

Atlassian’s marketing & sales budget has been growing but I’m hoping they keep the course of letting the product speak for itself. My ideal B2B company does the following — build a badass product that customers enjoy, those customers spend more money with you and they tell others about how great your product is, which does the sales for itself. When you get into that cycle the money goes into making your product better which accelerates it and scales better than a heavy marketing & sales approach. After a decade of using Atlassian products like JIRA, I’m of the opinion they make best of breed products and can pull this strategy off.

I dig not only Atlassian’s product-focused philosophy but all of the other things I look for when I buy a stock. I like that their founders have shown an ability to delay gratification. Scott Farquhar and Mike Cannon-Brookes could have sold out long ago but held out, these guys are in it for the long haul. They’ve been patient in building Atlassian slowly and thoughtfully. They only took funding after they had impressive traction, which gave them the leverage they needed to get a favorable deal. The values the founders run the company on jibe with me —

  1. Open company, no bullshit.
  2. Build everything with heart and balance.
  3. Don’t f*** the customer.
  4. Play as a team.
  5. Be the change you seek.

I’m going into this stock knowing the Price to Earnings ratio is ridiculous, and that is fine. The bottom line is I think this company will be around in 10 years and will be making a lot more money than they are now. I have faith that Atlassian will continue to seek profit and their low marketing & sales spend will allow them to do so with ease. The founders will keep the culture strong and ensure a long-term outlook is maintained. The product line will continue to get better, the current Atlassian customers will continue to spend more money, the Atlassian products will continue to make their way into the browsers of employees at companies all over the world and the money will add up nicely.