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 $050 to $1.05. ARPU increased 16% over Q1 2017 when ARPU was $0.90.
  • Total revenue grew 153% year-over-year and up 21 percent 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.


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 Simplicity of Spectacles and AirPods

Posted: March 29th, 2017 | Author: | Filed under: apple, Design, snapchat | Tags: , , | No Comments »

This isn’t 2007 or 2010 when the iPhone and iPad debuted but the Spectacles and AirPods have had a lot of hype. I had my doubts. I never liked Earpods, they’re uncomfortable and fall out of my ear. I didn’t immediately dig the style of the Spectacles. Despite those concerns, I had to buy both and try them for myself.

What Spectacles Do

Spectacles take up to 3 consecutive 10 second 720p videos. Click the button once to take a 10 second clip. Click again when the video is about to end to extend it twice, up to 30 seconds. Pairing Spectacles are a breeze – use the Spectacles to take a video of your Snapcode to pair. When not paired, Spectacles take snaps and sync later once paired.
 
Spectacles excel with physical activities. Riding a bike and beach volleyball are great examples. Times where a first-person point of view is compelling. Any two handed activity, like pouring a beer or driving a car, make great Spectacle snaps.

What AirPods Do

Like the Spectacles, pairing with AirPods is amazing. Take them out of the case near your phone and they immediately detect and pair. Going from phone to computer is seamless. The sound, microphone and fit are outstanding. I forget they are in my ear. They’ve lived up to the hype.

Cases

Both Spectacles and AirPods come with high quality cases that charge the devices. The Spectacles case is bulky and I find charging without easier. The AirPods case is excellent. Bye bye Wires! Carrying a small case is a subtle improvement that affects me every day.

Simplicity

Spectacles and AirPods are simple and limited. Unlike Google Glass before it, Spectacles do one thing and only one thing. Spectacles can not take photos. At first, this seems odd but Snap has learned from Google’s missteps. Snap may be limiting the ability to take photos to thwart the privacy concerns. The light allows someone to know when someone is recording but a photo would be harder to convey to others.
 
AirPods have only one gesture, a double tap, which you may set to contact Siri or play/pause. I miss not being able to adjust the volume with my headphones. This constraint has affected my behavior. After years of slow adoption, AirPods has increased my Siri usage.

Coolness

Both products have that X factor of coolness. Not very scientific but the products look and feel cool. People are curious about both and strangers will stop you to ask questions. In Venice the stops are more of an attack of how could I support Snap, who is “ruining” Venice. Spectacles, being smack dab on your face, get more questions than the AirPods. People express concern but are less freaked out about being recorded than I expected.
 
The Spectacles’ storefront on Venice is the epitome of cool. Facebook or Twitter isn’t pulling something off like this and wouldn’t think it’s worth it. Facebook once caught criticism for no longer being cool, as if that signaled doom. Companies don’t have to be cool to be successful but coolness can be a differentiator. Right now, Snap owns cool in the Mobile Entertainment space.

Bottom Line

Spectacles and AirPods are simple, cool and useful. I will use AirPods nearly every day making their $159 price tag cheap considering the value. Spectacles won’t get that amount of use, I prefer the aesthetics and feel of my New Wayfarer Ray Bans. Now that I live in Sunny LA, I’m sure I’ll wear them over 100 times this year. At $129, they’re worth it….as long as you don’t lose em!

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.