Snap Tumbles Below IPO Opening Price as Analysts Say Sell
bloomberg.com
bloomberg.com
An IPO is a mechanism for a company (and its investors and other stakeholders) to sell shares in exchange for money.
The investment bank that facilitates the IPO has the job of "marketing" those shares (and doing the administrative stuff around the IPO).
The goal in selling something is to get the best possible price. Therefore, a stock price that goes up at the date of the IPO and then declines below the initial price is the GOAL. It means the bank has done its job well. It got the maximum amount of money out of buyers.
If the price stood level, it would mean the bank had left money on the table. If the price went up immediately and then STOOD THERE, it would mean the bank severely underpriced the IPO. Thats the worst case scenario. If the price dips immediately and nobody buys, it just means the IPO was overpriced.
This also means that buying at IPO means that you're getting screwed unless you want to hold longterm. You're always paying a premium, unless you believe that the investment bank made a mistake. And you obviously have more data to make that bet than goldman sachs does. Obviously.
As a smalltime investor, for whom there is essentially unlimited liquidity in the market, just don't buy IPOs. And don't get excited over IPOs dipping below opening price. It just means you don't understand the mechanism.
While you may think that just the IPO is finished "that part of the story is done", it is very specifically that part of the story that we are currently discussing.
You'd have to be blind not to have noticed the rather irrational interest that the investing public takes in IPOs lately, especially tech IPOs. Despite both the 2001 dot-bomb and the 2007-2009 crunch, there are clearly a large number of investors hoping for a low-probability / high-reward speculative investment in tech IPOs regardless of the unerlying business fundamentals.
Pointing out that IPOs are typically a sucker's game is something worth repeating, I think.
A big pop says the shares were underpriced and the company left money on the table. A decline means the shares were overpriced and the buyers may become reluctant in the future.
For a company that only IPOs once, they don't really care if buyers become reluctant next time but they do care if a narrative develops that they have a loser stock.
In recent times a safe bet for the banks has been to underprice the IPO so that their big investor clients make lots of profit in the first couple of days, and then to weather the storm of the disappointed public company.
The newly public company won't actually do as much future business with the bank as the big investors will.
The share price is _not_ supposed to drop after an IPO. The insiders still have a lock-up of 6 months, so a lower price would be bad for them. Moreover, the investors in the IPO also want some upside. In the end, the IPO price is a negotiated price that takes into account a lot of considerations. Once public, the price is dictated by the last trade.
And "smalltime" investors shouldn't invest in IPOs because of the so-called winner's curse.
In the real world, market psychology and all, I think it's better for the medium term stock price to start off as something which the media will frame as a success story. I.e. better start at $80 and quickly rise to $100 than to start at $120 and quickly fall to $100.
Disclaimer: opinions based upon voices in head, not upon any kind of research.
EDIT: No doubt if it rises to $25.00 tomorrow it will have 'rebounded' and be worth another hyped headline.
These kinds of stories are like basing a climate change story on unseasonably warm weather.
Motion in the stock right now is noise; possibly profitable noise for some people, but there's very little to draw conclusions from in these post-IPO fluctuations.
Promoting price discovery [1] is one of the fundamental features and functions of a market.
Side note: the line between "speculation" and "investing," where the former refers to short-term shareholding and the latter to a specific set of Graham-Dodd valuation models, is not a general economic term. It only makes sense when discussing Graham-Dodd investment styles, which are a subset of long-term financial investment styles, which are themselves a subset of the market.
Facebook IPO set target price to 38$. It went down immediately at extreme point falling down to 18$ a share. It only got back to 38$ after around one year. What is the price now? 137$ Not saying this will happen to Snap, just saying IPO-s usually show similar dynamics.
...I did the same
One should make a buy/sell decision based on a medium/long term evaluation of the company prospects and try to ignore as much as possible the daily ups and downs.
Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings. -- Warren Buffet in the 1990 letter to the shareholders [1].
Too often today large (well past series C) tech companies (I won't name any names) refuse to go public and instead continue to take private equity and foreign investment and prop themselves up on absurd valuations with no-checks and balances. Some of these companies are absolute dog shit, yet they continue to receive unlimited funding and insane valuations in a vacuum with no market to short them. Wall Street calls bullshit when they see it, and smart people short bad companies when they find them. Silicon Valley doesn't provide a way to short these propped-up companies, they just continue to self-promote themselves on private equity and foreign investment.
https://news.ycombinator.com/item?id=13672675
You made the same comment on the Mulesoft IPO announcement. :)
I happend to be looking at that 17 day old thread earlier to see what people said about the Mulesoft IPO to see if it was worth participating in.
https://news.ycombinator.com/item?id=13620748
Wall Street calls bullshit when they see it, and smart people short these types of companies. Silicon Valley doesn't provide a way to short these propped-up companies, they just continue to self-promote themselves on private equity and foreign investment.
Growth is necessary for all companies, public or private. If you're not growing, you're dying. That's not always true, but it's true enough -- not just in economics, but for all organisms, literal and metaphorical. It's less about absolute growth than relative growth. If your competitor is growing faster, eventually they will crowd you out of the market.
Well, no. Only public ones have that pressure. If the owners of a private company agree, they can sit at any size and make a steady profit.
I imagine that going public, simply by creating a lot of new shares, is also an effective way to raise additional capital, which could be used to grow the company more, similar to a private fundraising round but larger in scale.
This statement is boggling. Only in Silicon Valley can a "billion dollar business" be worthless except for the price of its shares. Anywhere else, "billion dollar business" implies some kind of actual revenue.
1.) Raise substantial additional capital for R&D, growth, new products, pay down debt, etc.
2.) Exit event. Allows founders, employees and pre-IPO investors to "cash out". Typically at nice fat returns since they get heavily discounted shares.
3.) Increased public awareness since IPO's usually have media coverage and a general frenzy.
This is both Voodoo economics (how is $1 million a year profit worth $4 mil in one scenario, and $17.94 in another?) as well as somewhat logical, as public companies have more rules and transparency (in theory, if not always in practice) that make a profitable more public company more stable.
That being said, one of the most frustrating parts of being a public company is SoX compliance. This is not just for the CEO but for any executive/VP dealing with finances and sales. Every large sale takes a bit longer because now you have to have this additional layer of scrutiny. When you are used to silicon valley pace, these delays can frustrate you, but you eventually get used to it I guess.
Google went public when it did because it was effectively already public.
I don't think that's true. Do you have some source that confirms this?
If you go e.g. to Cargill's website (a $100 billion private company), you won't find any detailed financial information. There are some high level numbers and their yearly report is some marketing fluff. Same thing for e.g. Ikea.
As a public company there is relentless pressure to deliver ever increasing quarterly profits above anything else. Trying to focus on anything else (e.g. sustainability or long term plans), opens you up to criticism and lawsuits from your stock holders.
This is such a tired meme. Public companies do all kinds of long term planning.
I love the fact that Silicon Valley thinks there's nothing better for the company than a young, maverick CEO, and that an experienced board and accountability are useless.
Regardless, the 500 shareholder thing specifically applies to American companies as far as I know. [2]
[1] http://www.ikea.com/ms/en_US/pdf/yearly_summary/IKEA_Group_Y...
[2] http://www.investopedia.com/terms/5/500-shareholder-threshol...
As far as I can tell, the companies themselves owe it to no one other than their investors and employees to consider going public. If going public doesn't further their position, and private funding is available, the responsible thing (as perverse as that is) is to pursue private funding, no? So who's the one ultimately responsible for the current situation, the companies or the investors enabling them?
That's not really how shorting works. You'd have to find someone willing to let you sell their shares, you'd have to incentivize them to do so, you'd have to find a willing buyer, and you'd have almost unlimited loss potential.
To short a stock you generally borrow that stock(on margin) from a broker. How do you do that with a pre-IPO company?
I feel like Snapchat is what all the younger kids are using, at least so I've noticed. I'm 30 but old school. I don't see them using it past a certain age (say.. college most likely). Everyone who uses Snapchat will probably gravitate to or concurrently use Instagram and Facebook. Facebook will persist into old age, perhaps Instagram as well.
There's a notion of active vs. passive engagement in each of these. Snapchat requires more active engagement to be interesting. There's the story aspect but not sure it's compelling enough. Facebook is nice because as soon as you turn it on you have this sort of mini magazine like feed that tells you what all your 'friends' are doing, you don't really need to do much to get involved, and it becomes easy to boop the like button to engage / like things.
What I think snap does have, that could be quite cool from a technology standpoint is its ability to create these "masks/goggles" that react when you say stick out your tongue or raise your eyebrows. I think that sort of what I would term reactive AI is something that carries a lot of potential. I don't know how much I see it becoming an ad-revenue generator, like FB/Insta/Twit that have more of this passive magazine like structure that still somehow fosters engagement.
Also curious to see what happens when rates go up
The small pop would signal healthy IPO conditions. The slow run down would show investors aren't in full-throttle bubble mode. We got the pop, plus some, as well as the the drag down, albeit sooner and faster than expected. If SNAP continues to between here and the offering price we can still chalk this up as a win for SV.
(Keep in mind, Facebook--whose revenues grew 54.2% from FYE 2015 to FYE 2016--trades at 14.4x FYE 2016 revenues. That implies a $5.82bn valuation for Snap. It's trading at a $30.4bn valuation, or 5x higher.)
[1] https://www.google.com/finance?q=NASDAQ%3AFB&fstype=ii&ei=4-...
Disclaimer: this is not investment advice. Please don't be a numpty and buy or sell securities based on Internet comments.
But a loss for the investors that bought the stock on the open market. So even if you think that's a good thing it will definitely reduce the chance of seeing another pop with the next IPO.
A 'drag down' is never a good thing for a stock.
"Pop" is a function of the gap between what the underwriters pay the company (the offering price), what the underwriters offer the market (the opening price) and what the market offers itself (the first-day closing price).
Lower first-day closing expectations thus mean less "pop", less profit for the bankers and/or a lower offering price for the company. If you believe, as I do, that valuations are touching on frothy, none of those is a bad thing.
Keep in mind that Snap was happy to go public at 14 to 16 a share [1]. Bankers priced at 17, it opened at 24 and then we got this mess.
> A 'drag down' is never a good thing for a stock
It can be healthy for the market if it encourages sustainable practices. That's my point--it's good in the long run.
[1] http://www.usatoday.com/story/tech/news/2017/02/16/snap-pric...
So, it's very good for investors who invested in the company, i.e. the sorts of people that won't be selling the stock within 2 days of buying it. They'll hold on, and presumably make money in the long run as the values drag down.... and back up beyond the ipo value.
Granted, it'll be years if not decades before SNAP pays a dividend, if it succeeds at all. But on the flip side, SNAP's future dividends could turn out to be worth much more than the current price, even after discounting for risk and the opportunity cost of your capital.
It's a loss for speculators who gambled that it would go up. I'm lacking sympathy for people who snap up stock at IPO and assume it can't possibly drop.
> A 'drag down' is never a good thing for a stock.
It's a great thing for anyone who wants to buy at the lower price.
Its only a bad thing if you're trying to short-term game the market with simplistic strategies. And if you're doing that you have worse problems.
[1]http://www.businessinsider.com/goldman-sachs-is-predicting-s...
Fair enough. The standard growth adjustment to the P/E ratio is the price/earnings to growth (PEG) ratio. Let's consider a price/revenue to growth (PRG) ratio for Facebook and Snap.
Facebook's $398bn valuation [1] sits on $27.6bn of 2016 revenues, up 54.2% from 2015 [2]. This represents a PRG of 0.266. Snap's $30.4bn valuation [3] rests on $404 million of 2016 revenues, up 690% from 2015 [4]. Thus, a PRG of 0.109.
Snap needs to grow revenues by at least 290% a year every year for the foreseeable future to reach Facebook's price/revenue levels. Put another way, Snap has a year and a half [5] to hit $2bn in revenues. (At that point, its price-today-to-revenues-tomorrow profile will be similar to Facebook's price-today-to-revenues-today.)
[1] https://www.google.com/finance?q=NASDAQ%3AFB&ei=z_C9WLngO4W8...
[2] https://www.google.com/finance?q=NASDAQ%3AFB&fstype=ii&ei=JP...}
[3] https://www.google.com/finance?q=NYSE%3ASNAP&sq=snap&sp=2&ei...
[4] https://www.google.com/finance?q=NYSE%3ASNAP&fstype=ii&ei=1v...
[5] log 1.29 ((27.64 / 398.3) * 30.44) / 0.4045)
Disclaimer: this is not investment advice. Please don't be a numpty and buy or sell securities based on Internet comments.
No they don't, you're exaggerating substantially.
They'll hit near $1 billion in sales for fiscal 2017.
FB's price to sales number as you noted is 14.
For Snapchat to hit that level, they need around $2 billion in sales as of today (that'll soon be even lower I suspect).
They'll need one year of 100% growth after this year. They could easily get near or hit the 14 sales multiple by the end of 2018 in other words, without needing a single year of 290% growth in either 2017 or 2018. Your speculation missed by a mile.
They did $404 million for 2016. 290% growth on that would get them near $1.56 billion. In just five to six quarters of your growth projection, they'd have caught up to the Facebook sales multiple.
Or be conservative about it. They need:
100% growth for 2017 = ~$800m in sales for the year
70% growth for 2018 = ~$1.35b in sales for the year. They'd have a 21 sales multiple there (50% higher multiple, with near 50% faster growth).
50% growth for 2019 = ~$2 billion in sales, which gives them the 14 price to sales multiple on today's market valuation. Based on what kind of sales growth rates have been achieved by the likes of Twitter, these growth numbers are reasonable.
Not even remotely close to requiring 290% per year growth for years into the foreseeable future.
>> Put another way, Snap has a year and a half to hit $2bn in revenues
"Five to six quarters" is the same as a year and a half.
> 50% growth for 2019 = ~$2 billion in sales, which gives them the 14 price to sales multiple on today's market valuation
In 2019. We are comparing Snap's price-to-revenue ratio, adjusted for expected growth, with Facebook's. If you increase the time Snap has to reach a price-to-revenue threshold then you've reduced its growth. That, in turn, requires a higher price-to-revenue ratio to make the growth-adjusted PRG comparable.
Going from $404 million to $2.06 billion in 3 years (instead of 2 or 1.5) means a 70.4% growth rate (instead of 122% or 190%) [1]. That produces PRG ratios of 1.07, 0.627 and 0.399, respectively. Higher than Facebook's 0.266.
You said they need 290% growth for years into the foreseeable future. You were wildly exaggerating. They never once need to hit near 290% style growth rates in the next three fiscal years (including 2017).
You seem to be intentionally ignoring that they don't need 290% type growth to reach FB's sales multiple rapidly.
100% -> 70% -> 50% growth is perfectly reasonable based on historical comparisons and what Snap has already managed.
By the end of 2018, their 21 sales multiple would justify the contrast with Facebook's 14 type level, based on the much higher growth rate.
Or, let's be even more realistic about it. Their stock declines from here as most are expecting. They have a $22 billion market cap instead. Their sales hit $1 billion for 2017, and then $1.7 billion for 2018. Their multiple at that point (13) is below the Facebook 14 number. That's a mere seven quarters or less away now, performing at a growth rate that is likely to be hit or nearly so. That's assuming they don't outperform on ad sales and deliver even higher growth.
They need at least 290% growth to reach parity with Facebook on a PRG basis. This is a mathematical fact arising from their and Facebook's numbers and the definition of the PRG ratio.
There are four components to the PEG ratio: price (P), earnings and earnings growth rate [1]. For the PRG ratio, we amend this to price, revenues (R) and revenue growth rate (G), i.e. P / (R * G * 100). We can further expand G to revenues today (R0), revenues tomorrow (R') and the years between today and tomorrow (y) using the definition of compound annual growth rate [2]. We can thus derive a fuller expression of the PRG ratio [3].
Using Facebook's FYE 2015 numbers for R0 and FYE 2016 numbers for R', where R' = R since we're using a historical R', we find a PRG ratio of 0.266 [4]. We now seek to find under what conditions Snap can make a 0.266 PRG given its current valuation. R0 = R = $404 million (FYE 2016 revenues) since we're forecasting R'. P is set by the market.
All we have to play with are R' and y related by (R' / 404 million) ^ (1 / y) = 3.833. Solving for y given R'=$2.06bn yields 1.19 years. Going from $404 million to $2.06bn in 1.19 years means a 283% growth rate.
The math is unyielding. In one year, Snap needs $1.5bn (in 2 and 3 years $5.9bn and $23bn, respectively) to hold, at a minimum, parity with Facebook based on this metric. If they don't, their PRG ratio goes up or their valuation goes down. This is a fact based on definition, not an opinion.
Valuing unprofitable high-growth companies is hard. Your quibble may be with the metric. When Snap becomes profitable it will lend itself to the far more tolerant P/E and PEG ratios. Until then, they need to grow or devalue.
[1] http://www.investopedia.com/terms/p/pegratio.asp
[2] http://www.investopedia.com/terms/c/cagr.asp
[3] PRG Ratio = P / [100 * R * ((R' / R0) ^ (1 / y) - 1)]
Snap is not located in Silicon Valley, if that's what you meant by "SV".
It is if you bought at the opening. Retail investors don't get to participate at the offering price.
Apples to apples etc...
TWTR revenue 665M in 2013 (the year they went public)
TWTR revenue 316M in 2012 (the year before)
FB rev 5.09B in 2012 (the year it went public)
FB rev 3.7B in 2011 (the year before)
SNAP rev ??? in 2017 (the year it went public)
SNAP rev 400M in 2016 (the year before)
I'm bearish on Snap at current numbers, but willing to see how they play their position for long term growth.
(I have no positions, this is not investment advice, reality is a construct of the human mind etc)
Every company goes through the hype phase. What is 'left over' is usually the raw utility of the product.
'Parents' got onto Facebook and continue to use it = some degree of utility. Teens 'stay on' because of the ubiquity of it.
Snap is not Facebook. It's very possible that 'parents' never go onto snap, because it offers them little outside of messaging. 'Sharing moments' is just not what people > 30 care to do that much. Maybe some, but not likely a critical mass.
Furthermore - even these features are somewhat faddish among the young.
There is a very real possibility that Snap is a huge fad, with very little underlying utility.
Now - Snap is different. They refer to themselves as a 'camera company' so maybe they can keep innovating, but I'm doubtful.
But if they position themselves as an 'aspirational youth brand' - then they might stay relevant.
Think: Nike, Lululemon - they make pretty good gear used by 'real atheletes/yoga types' - which gives the brand enough validation for you and I and other chumps to pay $$$ for their gear while we sweat it out.
They are LA based, which is good for that. Also - those 'snap glasses' - even though they were not very 'useful' - actually were a brilliant bit of marketing, and hit the zeitgeist of relevance perfectly.
So either/or:
1) They make an app that appeals to 'everyone' - which I doubt.
2) They continue to innovate in 'camera/sharing/experience' perpetually, which I doubt.
3) They can stay cool. Which I also doubt, but wouldn't put it pas them.
Again the issue is also real valuation: $25 Billion is a lot of valuation for a company that's not making any money. I don't care what their 'growth' is. What matters is 'how big they can grow, how well they keep customers, and how well they convert on them'.
I'm doubtful that Snap - as we see it today is going to grow into commodity usage.
Twitter has I think a broader appeal - and look where they are.
Facebook did not change that much from after their IPO - the product offer is largely the same. The same thing millenials used, their parents and grandparents used. I don't think Snap can say the same.
They could be succesful, but there's a lot more risk in it than say, FB - and that risk should be reflected in the valuation.
Any company can own any of a number of corners of the social media space. Facebook can't eat Tumblr unless Tumblr drops the "commentary is king" ball. Snap can't eat Instagram unless Instagram drops the "streams of nice pictures" ball. No one company can control it all because there are many different social physicses and people can only handle a few physicses under a single brand name.
And no one can eat Snap unless Snap drops the "send media to your friends right now" ball.
All Snap has to do is execute. Sure, they could stumble over themselves, but person-to-person media rich messaging is theirs to lose.
Snap is not really messaging - it's 'sharing moments'. It's not really very good as a 'simple messaging app' - unlike FB, which is very basically messaging.
My mother will use FB messenger, she won't use Snap.
'Basic messaging' is the ubiquitous thing, 'Enhanced messaging is 'niche-ish'.
Snap definitely could go to ubiquity, but I don't think they will. Maybe.
I guess when I am thinking about "messaging" I am just thinking 1:1 or 1:few publishing and private. Which Snap is (mostly? Kim Kardashian is on there so semi-public)
The distinction between media capture and text is interesting though. I haven't thought about the possibility that those are fundamentally different.
Valuations of companies are complex irrational things.
The reality is often a lot more complex.
* It seems unlikely Snap could plummet in popularity over a few months like some mobile game or Taylor Swift song. If Snap flames out, the usage graph will probably decay more like Skype than Draw Something. The two prongs of its platform allow Snap to (1) enable communication like Skype and (2) distribute content like YouTube. Distribution and communication companies tend to decline much slower than content creators like Zynga.
* Snap's entertainment platform could finally crack interactive TV/video. This will be fascinating to watch unfold as Snap empowers content creators to create digestible, interactive video for the coveted advertising demographic of users aged 15-34. In particular, could adding a buy button marry video and commerce in a novel and lucrative way?
* Through videos and pictures, Snap can infer a lot about users: style, hobbies, habits, food preferences, and more. This is also a hidden treasure trove for Instagram and Facebook, but given the high frequency of Snap messaging, the data could be richer and more authentic with Snap.
Advertising in one-to-one messages feels very intrusive, I could see a market for direct marketing in the stories section however it would have to beat the indirect advertising marketers are currently paying the power users for.
The metric to monitor for Snap is daily engagement. Snap has all but confirmed it will not play the MAU game [0]. This doesn't mean Snap won’t try to expand the user base, but merely that maximizing MAUs isn’t the same priority as at Facebook.
This strategy is risky because it means Snap must generate growth from somewhere other than user acquisition, which is the typical playbook for consumer startups.
On the plus side, this frees Snap to pursue an Apple-like strategy of pushing the boundaries of coolness and innovation as opposed to diluting the service until it's vanilla enough to reach 1B+ users. The more mainstream your aims, the fewer risks you can afford with the core product.
Strategically, it may let Snap sidestep the trap that ensnared Twitter. Twitter’s greatest sin was simply not being Facebook. Wall Street and the media need a foil for every market leader, and Twitter has been sadly shoved into this role.
Playing the MAU game is playing Facebook’s game, and Zuckbergerg has so far dominated anyone who competes.
Focusing on daily engagement offers a chance to battle the lion in water instead of on land, to position Snap as different from Facebook and pioneering a different market. Unseating Facebook as the #1 social network is extremely daunting for Snap, if not downright impossible. As Twitter today and AMD from the 1990s can attest, life as the #2 player can be challenging. Wall Street whacks you with much lower multiples, and the press is hardly any kinder.
Whether Snap actually convinces Wall Street and others to value them as different from Facebook remains to be seen, but this route is not surprising given Twitter’s carnage.
Even if Snap stumbles, what Spiegel and Murphy accomplished is nothing short of extraordinary. They grew a pure sexting app into a $30B communication and entertainment platform. This transformation didn't result from one "lucky" choice, but rather a series of risks and enhancements over multiple years. If you had given me 4-5 years to maximize the value of a sexting app, I think maybe, in the most optimistic scenario, with all the luck in the world, the app could have sold for $3M (with $0 as the likely scenario). What they did is 10000x greater than what I could have achieved under the same circumstances.
[0] https://www.bloomberg.com/news/articles/2017-01-20/snap-said...
That's pretty unusual for a 10+ billion dollar company
"Securities underwriting refers to the process by which investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt capital). The services of an underwriter are typically used during a public offering in a primary market.
This is a way of distributing a newly issued security, such as stocks or bonds, to investors. A syndicate of banks (the lead managers) underwrites the transaction, which means they have taken on the risk of distributing the securities. Should they not be able to find enough investors, they will have to hold some securities themselves. Underwriters make their income from the price difference (the "underwriting spread") between the price they pay the issuer and what they collect from investors or from broker-dealers who buy portions of the offering."[1]
When the comment above said "underwriters aren't allowed to hype their own handicraft", the "handicraft" he's referring to is the new stock that they just distributed, and hyping it generally takes the form of the banks' analysts issuing "buy" recommendations.
[1] https://en.wikipedia.org/wiki/Underwriting#Securities_underw...
[ Edit: I said 40 days, but the rule was changed. http://www.finra.org/sites/default/files/notice_doc_file_ref... ]
In short, SNAP's IPO was big enough that most of the banks which like the company participated in the IPO. Legally anyone involved in the IPO can't publish an analysis for (IIRC) 10 days, which means that the banks which like them can't talk.
Wall Street provides highly liquid markets to the rest of the world, but when it comes to the way the finance sector's own services are delivered, the pros excel at turning price-efficient markets into cozy cartels.
They will have to worry about talent acquisition/retention if the stock price tanks though. But maybe that is offset in the short term by the appeal of working for a company with public shares.
They are dealing with economy of scale. If facebook+google have 90% ad penetration then snap must displace facebook.
It wouldn't be displacing them per se, they'd still sell the same $ to the same companies.
Will that happen? My guess would be on no. I don't think there's room for a 3rd large player in the digital ads world, Twitter tried to be it, but failed. But hey, maybe Snap is able to do it (but I doubt it).
Average IPO revenue 2015: $38M
SNAP revenue 2015: $58M
SNAP revenue 2016: $350M
Add to the fact that in 2015 on 30% of IPO companies were profitable, they seem to be well within market bounds.
[1] http://www.businessinsider.com/data-shows-nearly-half-of-sna...
How is having more revenue without profitability a positive sign?
With the upcoming FED hikes and the recent stock market rally, one could say that it will be a lot harder for late stage companies to aquire further financial resources in VC/the private equity market.
After the $SNAP hype and crash the public market will probably not be willing to invest in other tech companies in the next months anymore, at least not at the current valuation level.
Twitter hasn't made a profit once in its years of existence, and does not appear to have a way to make any. Snap said they might never profit in the prospectus.
How would you value these companies to reach the conclusion that losses are "over punished"?
Specific securities, sectors or the stock market in general still can be overbought and oversold.
Huh? Snap is mobile only. Facebook was way behind in mobile, particularly in advertising (I don't think they even did mobile ads at that point). On the growth point, unless they do something really cool, I think they're screwed. Instagram has them covered and Snapchat growth slowed significantly since Insta Stories launched.
The biggest two:
1) FB dropped on opening day itself, which was actually great for Facebook (the company), but not so great for the Morgan Stanley bankers who were underwriting the IPO. They overestimated the price that retail investors would want to pay, so they overpaid Facebook for the shares.
2) SNAP is issuing only Class A shares, which are non-voting. Some other companies have segregated classes of shares with different voting rights, but according to SNAP's own S-1, they are the first company to have an IPO with only non-voting shares available.
Combine that with the fact that they have no plans to make a profit[0] or to issue any dividends[0][2], and that means that the appeal to investors is very limited: they have no way to influence company decisions, and no way to participate in profits from the company. Those are usually the two biggest contributors to the fundamental value of a stock.
[0] this is not my opinion; this is a direct quotation from their S-1: "We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability."
[1] Again, directly from their S-1: "We do not intend to pay cash dividends for the foreseeable future."
[1] https://www.sec.gov/Archives/edgar/data/1564408/000119312517...
To me this shows the cynicism inherent in the entire stock market system. We're all just trading on the popularity and good will of these companies, and they know it.
Other than that getting IPO price correct is very complex for companies without a history of profits. However, any price greater than zero is still useful.
They do not have plans to make a profit. They have plans to do things, and those things may, in the future, generate a profit, but they have not committed to any concrete timeline for generating a profit or set any estimated targets for profitability, which I think can be reasonably summarized in a colloquial context by "no plans to make a profit".
> [1] Again, directly from their S-1: "We do not intend to pay cash dividends for the foreseeable future."
FWIW this is a negative spin on the statements. The first [0] statement sounds like a standard warning, and the second [1] specifically calls out cash dividends, not profits. FB has not paid any cash dividends, neither has Google, but both have large profits. It's uncommon for tech companies to pay cash dividends. Apple and Microsoft do it (both very old companies), but few others do.
The difference is that people can purchase shares in Facebook and Google that give them voting rights. That is not true for Snapchat.
The fact that Snapchat isn't giving dividends today isn't notable per se, but the fact that it's not giving dividends and investors have no mechanism to influence the company's direction (which includes pressuring them to provide dividends in the future) is literally unprecedented.
Market premium on GOOGL (voting shares) is 2.4% as of this writing, FWIW.
It's possible for disagreement to exist between the founders, requiring a majority coalition to be built using non-government-held votes.
Minority shareholders have rights even without majority voting control. Some of those rights do apply to non-voting shares, but they're much more limited.
GOOGL isn't particularly relevant here; all that says is that investors today are confident in the leadership's plans. That could change tomorrow, and it means nothing for Snapchat.
It's more of an indicator of the current level confidence in Google's leadership. You can look at that as a point-in-time snapshot of how much investors value voting rights in Google today, sure, but that doesn't mean much for Google a year from now, or for Snapchat today.
If investors lost confidence in Google's ability to execute and believed that the leadership was the root cause of this failure, then the ability to vote them out (or even simply put pressure on them) would carry a greater premium than it does today.
> [1] Again, directly from their S-1: "We do not intend to pay cash dividends for the foreseeable future."
That's not one of the differences between FB and SNAP, the same risk is listed in Facebook's S-1 (only the word "cash" is missing).
I didn't say that was a difference - I said that their plans not to issue dividends combined with their unique voting structure was significant.
That disclaimer means something completely different when you're talking about a company that is issuing stock with voting rights (even when the CEO has majority ownership), as opposed to a company in which the stock carries literally no voting rights.
If not I can't see how Snaps stock could be worth anything at all. It was just free money for them from the IPO without any obligations to the new "owners".
The material difference is the product - who it will appeal to, and how long it will remain appealing.
When FB went public, they had a product that was appealing to parents, grandparents, and everyone else.
Snap has currently a niche offer, that may not get traction into other demographics.
In order to justify their valuation they have to have a ubiquitous penetration, and I don't see them getting it - at least not with the offer they have today.
(1): https://techcrunch.com/2012/02/01/facebook-1-billion-profit/
Snap is neither twitter nor fb, which of course is a source of uncertainty. It's not twitter, because snap's data consists of a lot of internet dark matter - so to speak - pixels, that is. Let hell break loose and buy up machine learning engineers and researchers in bulk and let them poke around in it. There sure will be some way to optimize ads, and then just sell it off: the perfect blended ad to the right audience at the right time and space.
Is there anything more substantial beside fun? Yes, a nice social pressure signal, millions of tiny celebrity effects playing out every day, together with all the drama, gossip and emotion - which should have a positive effect on ads. The score-rich - I mean the poor teen talent - gets a discount on a product, that has been seen on other influencers (but not too many). The poor pool of losers and in-betweens might buy a burger to get over the pain.
This social game is so much fun, it's even fun to just write about it. All this drama, all this pain, captured on tape and stored on a shelve. Ready for a smart machine to look at it and ask: I saw your face before, and the look of yours on someone else, you look sad, you're mostly inside, I have the perfect product to cheer you up, may I? And, oh, I make it fun for you to acquire it, too.
You think this is scary? You think it's borderline exploitation, because the data generators can be kept sad, if their score is too low?
Which brings me to my conclusion for the record. Snap will thrive part because people just do not care about these things anymore and part because the majority has not much choice. Stronger and more resistant individuals will just reject the instant gratification and focus softening. People, who kind of see through the hype and the value propositions, that maybe matter too you and maybe matter, because somebody would like to make it matter for more people, so I have to adjust. Maybe 80% of a population, according to some estimates, does things, because everybody does them - no or few questions asked. And hey, if all it takes to be accepted is a push of a button, what's the problem?
And so the story continues. Snap will thrive. One thing that would kill both facebook and twitter (and snap) would be Moore's law, in the sense, that a social network of friends can be held completely on the interactors devices, because, well in few years, 128GB per phone is ok, text and messages are cheap and can be routed without being stored and scanned and images can be stored and cached locally.
But there is no money in letting people alone. No money, if I cannot distract them. No money if I cannot read what they read and see what they see. No money, if I cannot control them and their experience.
I guess the clearing firms just don't have any shares to lend out -- we could see another price drop once the stock is easier to borrow.
Snapchat watches people in their most private, most intimate moments, who are unaware that all of their data passes through centralized servers. Why should states even bother with intrusive surveillance anymore, when people freely offer to surveil themselves?
If Snapchat disappeared tomorrow, people would just upload their nude photos elsewhere. Nothing of value would be lost, except for maybe the world's largest, most centralized pornography database, with fairly reliable correlation to real identities. That could never lead to abuse of power.
I think most people who use Snapchat are still aware that Snapchat can see their nudes.