Snap falls to IPO price | Hacker News Reader

Snap falls to IPO price

usatoday.com

280 pointsprostoalex238 comments

$17.00 was the IPO price but only for investors with access. Your average investor with an eTrade account saw a price of $24.00+ when the market opened that morning, and it hit almost $27.00 that day. So those folks have seen a 30%+ drop since IPO.

Given that Snap paid out billions in IPO bonuses to executives and other employees, it's turned out to be a pretty big wealth transfer from retail investors to Snap employees.

Did you try to subscribe to the IPO? It was not hard at all. I'm an "average" investory with a standard Charles Schwab trading account and subscribed to it with a few clicks of my mouse. I imagine anyone else could with their brokerage. It was oversubscribed tho, so I got half the quantity I wanted and sold shortly after opening.

Yep, same here. Fidelity account with pretty low balance but profiled for "aggressive growth", opted into their IPOs, and I got an invitation to participate. Blue Apron, too, among others.

> It was oversubscribed tho, so I got half the quantity I wanted and sold shortly after opening.

This seems like a pretty good reason to auction the shares in order to maximize the amount of money the company takes in. That they very rarely do has always seemed kind of dirty to me.

That would stop the issuers from making a bundle on just about every IPO and we can't have that now, can we?

So this is pretty lazy anti-intellectualism.

Can you provide some evidence that the investment banks are colluding on IPO pricing?

How is that anti-intellectualism? Not saying they are right, but criticizing wallstreet/giant tech companies for price fixing is not that.

They are claiming the banks are fixing prices without offering any proof.

Well, the "proof" being "we all know banks are greedy and evil, so they must be doing this"

They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism.

I have no opinion about actual 'collusion' but the mechanism looks pretty bad seen from afar.

The banks compete against each other on price - the company gets to freely choose the underwriter and they take price into account.

Do you have evidence the banks are colluding on price?

Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.

> Do you have evidence the banks are colluding on price?

Nope, which is why I wrote that I have no opinion on that. Edit: I think that very direct collusion would probably not be a stable arrangement, long term. But perhaps 'not competing too hard' between a low number of competitors with big barriers to entry is realistic.

> Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.

That's still a way less transparent and market-oriented option than auctioning the shares. It's a hell of a lot easier for a few banks to be 'gentlemanly' in their competition than it is for lots of people trying to get some shares at an IPO via an auction.

I mean, we're discussing an IPO that was "oversubscribed" at the set price, meaning money was being left on the table, right?

> They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism.

Er, no, it's literally set by an auction (the auction occurring between the different banks who can underwrite the IPO).

A bank that is consistently able to predict the IPO opening-bell price better than the others, or is willing to accept a slightly smaller cut than the others, will win the auction, and will outperform the others on average.

> the auction occurring between the different banks who can underwrite the IPO

What do you mean? Do you have a reference?

I wouldn't characterize the activities between banks underwriting an IPO as an auction, probably closer to a negotiation [0].

This [1] is a well-written prose from Matt Levine on the role of underwriters in working with Snap prior to their IPO.

[0] https://www.bloomberg.com/view/articles/2016-01-15/uber-is-r...

[1] https://www.bloomberg.com/view/articles/2017-03-27/banks-tha...

How is that related to the claim of the IPO price being set by an "auction occurring between the different banks who can underwrite the IPO"?

Edit: thanks for the clarification

I've edited my comment above to be more clear.

I make no claim they are or not, simply that making a claim about banks doing something isnt anti-intellectualism, unless you believe making an unverified claim (in your eyes) is anti-intellectual.

Wikipedia states "Anti-intellectualism is a hostility to and mistrust of intellect, intellectuals, and intellectualism commonly expressed as deprecation of education and philosophy or dismissal of art, literature, and science as impractical and even contemptible human pursuits.[1]"

None of that is happening in the grandparent (as far as I can tell.)

You can certainly accuse them of biased unverified information and demand proof, its just not anti-intellectualism.

The facts that they are the primary beneficaries of underpriced IPOs (ie, the biggest reward for the smallest risk) and that they are the all-powerful gatekeepers of the process and that most of these IPOs shoot up in price on day one (meaning that their customers are leaving huge amounts of money on the table) is a pretty good indication. If you don't count fully aligned incentives as evidence, it's at least very clearly a process ripe for collusion and corruption, and should be handled with extreme care and skepticism.

> The facts that they are the primary beneficaries of underpriced IPOs (ie, the biggest reward for the smallest risk) and that they are the all-powerful gatekeepers of the process and that most of these IPOs shoot up in price on day one (meaning that their customers are leaving huge amounts of money on the table) is a pretty good indication

On the other hand, the entity that they are taking money from is literally the company that's IPOing (when the price shoots up, it's called leaving money on the table, because it's money that the company isn't raising in their IPO, and is instead going to the banks).

There's a reasonable degree of competition between banks to underwrite an IPO, and companies have the ability to choose which bank to work with, so any conspiracy here would require actual widespread collusion between underwriters (which would be illegal the same way horizontal integration generally is in any industry). While not impossible, that's the sort of claim which warrants tangible evidence, rather than indirect evidence just from the existence of shareholder prices increasing on the opening bell.

"Well-established protocols" can result in IPO prices being systematically set too low. Yes, theoretically a bank should be able to break the ranks, but all they would get for their trouble is smaller profits, and a potential lawsuit from investors. After all, they did diverse from the "established accounting standards" when pushing the IPO price up.

> "Well-established protocols" can result in IPO prices being systematically set too low. Yes, theoretically a bank should be able to break the ranks, but all they would get for their trouble is smaller profits, and a potential lawsuit from investors. After all, they did diverse from the "established accounting standards" when pushing the IPO price up.

Assuming a roughly competitive market with n players that do not engage in direct collusion, if IPO prices are being set too low from the perspective of the companies IPOing, there's room for an additional player (n+1) to set their prices slightly higher. Assuming their ability to predict the risk on the opening bell prices is the same as the other n players' ability to predict risk, that bank will produce IPOs that are consistently favorable for the companies IPOing, and companies will choose that bank as their underwriter. Ceteris paribus, their profits would grow, not shrink.

There are factors that impede this from happening perfectly in practice - such as barriers to entry for the underwriters - which is (part of) what explains why this disparity won't trend to exactly zero. But it's wrong to say that banks would get punished by either companies or their investors for responding to this disparity by raising prices - the exact opposite would happen. And in itself, that still doesn't point to widespread collusion between banks, or even any sort of implicit conspiracy.

Not sure how you'd get that (n+1) business off the ground. Even with the current happy-go-lucky funding climate, I don't see much success in pitching the idea. "We'll take on the giant incumbents, by accepting additional risk on behalf of our clients, in return of reduced profits".

I agree that there would be a solid market demand for this company. The same way there would be much demand for a telecom/isp that provides more speed at reduced price. Consumer demand isn't always the only thing needed for a business to succeed, despite what pg says.

> Not sure how you'd get that (n+1) business off the ground. Even with the current happy-go-lucky funding climate, I don't see much success in pitching the idea.

This is a thought experiment, designed to illustrate that auctions (which IPOs are - an auction between underwriting banks) converge towards the maximum price that individual participants would be willing to pay. You can easily extend this logic to any individual participant.

> in return of reduced profits

You keep saying "reduced profits". If you seriously believe that banks are artificially keeping bids low, then there would be no reduced profits - any individual bank willing to outbid the rest consistently would completely sweep the entire market, capturing all profits across the market of banks which underwrite IPOs.

Of course, this won't happen, because banks aren't artificially keeping bids low, which is the whole point. You can't just point at the fact that post-opening bell prices are greater than IPO prices to show that banks are colluding with each other, because that doesn't prove anything. The current prices are completely consistent with a competitive market.

> when the price shoots up, it's called leaving money on the table, because it's money that the company isn't raising in their IPO, and is instead going to the banks

While true, the company can manage that risk by limiting the amount of shares to float, and then allocate more shares for sale in a secondary offering (Tesla just did one in 2016).

The game theory kicks in, though - when the float is too small, who's going to be the first sucker to bite on the buyers' side, knowing that a massive amount of shares is prepared for a secondary float shortly afterwards? I sure as heck wouldn't touch it, why not have someone else do price discovery.

Investment banks are not the primary beneficiary of an IPO, it's the current shareholders of an illiquid stock. Hopefully a banker can fill in some of the details but I will provide a couple of broad strokes here on the process. The underwriting banks are the ones taking the risk in an IPO. They are purchasing the shares from the company to be sold to the public. If they get that wrong they are the ones who will shoulder the loss. The underwriting banks are usually (maybe always) contractually obligated to support the price of a company they underwrite on the date of the IPO. If you look at the NASDAQ ITCH data from Facebook's IPO you can see the price levels fill up with orders when the price declined toward the IPO price.

There is also a lot of other considerations to consider when fielding a proposal from an investment bank, from research analyst assignment, purchasing from the AM arm, access to lines of credit and other financial arrangements.

You could argue that companies should be allowed to take themselves public and list directly. However in a world where people are clamoring for ever more regulation that is unlikely to be a common way for a major company to go public. Personally I would like to see less regulation in the equity market, but I am unlikely to receive that ;-)

Further Reading:

http://www.mergersandinquisitions.com/initial-public-offerin...

http://libertystreeteconomics.newyorkfed.org/2012/10/in-a-re...

I think it's simply stating the obvious: rather than using a market-based mechanism for price discovery, they pick a price to sell at. For a bunch of people who are such big fans of markets, this looks really dubious. "Markets for thee, but not for me".

Isn't that how just about everything is sold? My box of Cheerios isn't auctioned off; they picked a price. They had several factors that went into picking that price, just like those that set up the IPOs have.

Yes, and Cheerios sets their price to compete with other cereal providers. The consumer picks the company keeping the price in mind.

That's how IPO pricing works too. The banks compete against each other and the company chooses their underwriter.

This is how markets work. I fail to see how an IPO is "rather than using a market-based mechanism for price discovery, they pick a price to sell at".

I think davidw is making some strong claims without understanding how the IPO process really works

The pricing of Cheerios doesn't seem to suffer from the principle-agent problem, though. No one but consumers really 'wins' if cheerios are underpriced. And to my knowledge they don't continue to be traded once they're bought, either, so it's sort of apples to oranges.

> The pricing of Cheerios doesn't seem to suffer from the principle-agent problem, though. No one but consumers really 'wins' if cheerios are underpriced

This is not an example of a principal-agent problem. There are two competitive markets: the competitive auction between underwriting banks, and the competitive market between public traders. The price between these two differs because the underwriting banks assume a great deal of risk in the process - risk which otherwise would be borne by the company.

> And to my knowledge they don't continue to be traded once they're bought, either, so it's sort of apples to oranges.

Breakfast cereals are definitely sold wholesale by third-party suppliers (as are apples and oranges as well).

You started pretty aggressive and your replies are getting more so.

For one, you asked for proof that banks are colluding on pricing when nobody claimed that.

It's well known that the IPO company and issuer price the stock to try to get a "pop" on the date of the IPO, to toss some money the bank's way. It doesn't always work, but they do not try to price the company optimally. Similarly, the IPO company doesn't want to price it TOO low because they don't want to leave too much money on the table.

> So this is pretty lazy anti-intellectualism.

Ironically, your comment is also lazy anti-intellectualism.

(and even more ironically, so is mine!)

I was an intern at a Wall Street investment bank in 2004 and I remember the unbridled anger that animated any senior banker who started talking about Google and their efforts to "cut out the Street." It's not "collusion." It's simply that Wall Street banks are the ones with access to mutual funds and other buy-side investors, not tech companies. The bankers work with those investors every day, the tech companies once in their history. The behavior is enabled by what in Silicon Valley would be called a "moat."

Well no, because then they (the parties involved in generating the Initial Public Offering) probably wouldn't bother.

You need incentives to encourage price discovery. It doesn't just happen. The system may not be perfect but that "bundle" is (in part) what allows the public market to retain the efficiency it does have.

A company has a set IPO date and has filed documents with SEC on the number of shares they intend to float. The company thus has an urgency to sell 100% of that block of shares the day prior to the IPO or risk headlines of IPO being pulled due to the "lack of interest".

Investor doesn't quite have the same urgency. Sure, they could buy the stock the day prior to the IPO, but they could also get it the day of IPO, or the next day, or the next week, or a year after. That's the beauty of the public markets - there's always more shares as long as one is willing to put up cash.

Now, how will the company compensate the investor for the urgency?

Google tried to be cheeky and go the auction way. It was wrought with problems.

As far as I can tell, all tech IPOs following that went back the traditional way.

> problems

How can I learn more about this?

Search "google dutch auction ipo"

http://www.cnbc.com/2014/08/19/es-took-off-but-the-auction-d...

Sorry, what problems are these? The article mentions that institutional investors were unhappy about not getting their usual 15% guaranteed bounce, but it seems to have worked pretty well for Google and general investors.

I don't think you read closely enough. On the low-end, banks were thinking $108 for the base price per share. As it was, the IPO ended up at $85/share because of it being a dutch-auction where most investors played it safe and did low bids. As soon as the IPO executed (at $85) it popped anyway to $100. So Google potentially lost out on $23/share (minus 7-8% cut from banks).

https://www.quora.com/How-was-Googles-IPO-unique/answer/Yair...

"Play it safe" doesn't make sense in this context. Dutch auctions' purpose is to incentivize buyers to bid the highest price they're willing to pay.

Except it doesn't do that. In an open auction if someone bids higher you know you won't get any shares unless you raise your bid.

In a Dutch auction if you keep your bid low there's always a chance you will get your shares and at a good price. As actually happened in the Google case. Yes you're risking you might not get any shares, but bidding higher risks unnecessarily pushing the price higher for yourself and everyone else.

Are you sure you know what a Dutch auction is? In your descriptions, you seem to be transposing open and Dutch auctions.

Note that the term "Dutch auction" is overloaded, but in this case the article specifies:

> Often called a "Dutch" auction, this type of sale allows any investor—institution or individual—to put in a bid over the Web for a certain number of shares at a certain price without knowing what others are offering to pay. After the bidding, the highest price at which every available share can be sold becomes the price for all the shares—the IPO price. Google, along with early backers, was selling almost 20 million shares, and bids could be submitted for as few as five.

This doesn't actually remove the incentive to underbid. You might be thinking of a Vickrey auction? That's an auction of one item, in which the high bidder pays the second-highest bid. (This is what I always think of when I hear "dutch auction".) There's an obvious generalization to auctioning multiple items; but the Google auction is not that generalization, and also that generalization apparently doesn't work.

See https://en.wikipedia.org/wiki/Dutch_auction and https://en.wikipedia.org/wiki/Vickrey_auction . Frustratingly, the Dutch auction page describes a "second-price auction" which is different from that described on the "second-price auction" page that it links to, which redirects to Vickrey auction. It's a whole mess.

Dutch / English auctions are respectively descending- and ascending-price auctions.

In an English auction the auctioneer starts at a lowball (possibly zero) price and gets increasingly higher bids until he's satisfied that the price can't go any higher. In a Dutch auction the auctioneer starts from a highball price and lowers it himself gradually until he gets a buyer.

A second, orthogonal issue is if an auction is if it's first price (as most auctions: best bidder pays best bid), second price (best bidder pays second best bid) or something more complicated. Economists love the idea of second price ("Vickrey") auctions, but I personally haven't seen it used.

I recommend Bob Milgrom's article "A primer on auctions". It's in the Journal of Economic Perspectives sometime in 88 or 89 I think.

Actually, there's very much a lot to recommend in the Journal of Economic Perspectives whenever you want to learn about something in economics. This journal focuses on publishing accessible surveys of research areas that are just beginning to solidify (and already have a "shape" to them), rather than publish new ideas. It has excellent curatorship and articles tend to be written by top experts in each field.

> This seems like a pretty good reason to auction the shares in order to maximize the amount of money the company takes in. That they very rarely do has always seemed kind of dirty to me.

There's nothing dirty about it. Public investors prefer to have a single price, because that's, well, how public markets generally operate after an IPO. They don't want to have to participate in an auction. The purpose of underwriting banks is to provide a single price to public investors while also providing a competitive market for the companies.

The auction occurs between the underwriting banks, who compete for the company's business. The company chooses the bank that they want to use for their IPO (price being one of several factors, as is true for any marketplace). There's some risk involved, which is why underwriting banks effectively take a cut - in that sense, they're acting like an insurer, which takes a premium in exchange for absorbing risk for both parties.

> There's nothing dirty about it. Public investors prefer to have a single price, because that's, well, how public markets generally operate after an IPO.

In what sense is there a single price in public markets? There is a constantly-shifting order book full of many different prices, and the price of the last trade changes by the second.

If IPOs were conducted as a multi-item second-price auction, then everyone could indeed pay the same, fair price, more in line with what you described than the public post-IPO market.

Why one need underwriter at all? Why certain investors are offered lower unfair price?

> Why one need underwriter at all? Why certain investors are offered lower unfair price?

Those are two completely different things. Underwriters are there to ensure that the company is able to predict the amount of money that an IPO will raise. There are all sorts of legitimate reasons that a company needs to be able to predict the amount of money an IPO will bring in, starting with the fact that it's literally the entire point of an IPO.

Even in the Dutch-auction style that's been proposed in other comments, you don't solve the problem that some investors will be able to invest at the IPO price and others won't. The supply is finite; as long as demand ends up exceeding supply, you're still running the risk of people not being able to purchase shares, except now you've also done away with the invariant that a company can predict the amount of money it's going to raise.

(Note that even Google, which famously used a Dutch auction for its IPO, had an underwriter, and the underwriter had to change the share price at the last-minute because some larger institutional investors indicated that they were going to back out of the IPO and wait to trade later in the day. If that had ended up happening, it would have completely wiped out the money that Google was trying to raise by having the IPO in the first place).

Because an IPO typically involves floating a largish number of shares at once, so you need a guaranteed, money-in-the-bank, commitment to the tune of tens of millions of dollars, potentially more.

Underwriters have access to a bunch of people who marked themselves as aggressive investors (SEC rule to avoid snake oil companies pitching their imminent incredible IPO to a random grandma), who can then commit to smaller chunks.

If you build a platform that is capable of raising eight-digit amounts, you can advertise yourself to pre-IPO companies as a possible underwriter.

A few questions to consider.

1) How are you going to acquire those investors? Underwriters typically enjoy a large wealth management group that can provide them with a list of eligible investors.

2) How will you handle the financial transactions themselves? Underwriters typically enjoy having a banking license or two, which allows them to hold customer funds, as well as brokerage license or two, which allows them to act as a custodian for those shares once they're bought.

3) How will you, the middleman platform, get paid?

If I'm not mistaken the Google (GOOG) IPO was in the form of an auction, organised by their chief economist Hal Varian (wonderful name). Though based on a firm economic foundation and financially sound, the idea itself was (and remains) somewhat controversial.

Thanks for the info, I think my next bank account is going to be with Charles Schwab ( I was waffling between Ally and Charles Schwab, but this is a useful feature for me and a good step up from Robinhood).

I've had Charles Schwab since I was 18 and I can't recommend them enough. I've never experienced any company with better customer service.

I was referring to the trading account, which is independent from the bank.

Tho Charles Schwab bank accounts are useful because they refund your ATM fees.

Free checking account helps too; they sent me two boxes of checks and a checkpad with a $0 initial balance, for no fees.

And they offer you commission-free trades too if you offer to transfer in enough funds.

Great, great, place to keep your finances.

How's their mobile app on iOS?

Pretty similar to android (IMO)

Are you a Marx Brother? Sheesh.

It's fine. Been using it for years.

> Great, great, place to keep your finances.

Has their security improved since they made HN a few years ago?

https://news.ycombinator.com/item?id=8783790

I'm aware, but I'd like to keep the as few accounts as possible. Should simplify transfers and customer service.

I switched from Wells Fargo to Schwab last year. I've been very happy and the customer service is great. The web interface is a bit cluttered, but i've seen worse at banks :)

Refunds on all ATM fees make it worth it for that alone.

I wasn't aware of it but Robinhood did offer SNAP IPO: https://support.robinhood.com/hc/en-us/articles/115000902306...

Yes, but it's filled at regular price (I bought SNAP at $24), it's just that you put in the trade previous day (in the case of SNAP). It's more of a convenience feature, you won't get the stock at the pre-IPO value ($17 in SNAP's case).

You are right. I didn't read this part: "Please keep in mind these are not pre-IPO stocks or private placements and you’re not participating in the IPO"

Not everyone was able to buy at the IPO price. My friend was invited but could not buy any shares. BTW, being invited does not mean you'll be able to buy. It just means you'll be able to request shares.

You got half you order filled at $17 with Schwab on opening day? Or it fills before market open?

Yes, half my order filled at $17. Happens right before the market opens, and is immediately ready to trade once the market opens.

Do you need to be an accredited investor to subscribe to an IPO?

Bothers me that institutional investors and other insiders get preferred pricing while retail investors get less favorable pricing.

So this isn't true. Any average Joe could open a standard trading account and subscribe to the IPO.

The access to shares still isn't even comparable

It is. The quota you'll get is the same. Just that large companies have more time to analyse and talk to others and can better estimate how much potential the stock has.

Fidelity has a minimum of $100k or $500k to participate in IPOs depending on the specific IPO

Then I'd suggest going with etrade or schwab.

> retail investors get less favorable pricing

until today, that is

To be fair, institutions are often negotiating with underwriters on the pricing. That kind of price discovery doesn't happen with retail investors.

They also commit to purchase large amounts before the final demand is known. Their price is a combination of a bulk discount and risk discount.

And they can also re-invest in the stock now, at these great sale prices.

“And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful” - Warren Buffett

Since we're pulling out pithy quotes, I have one: "the trend is your friend", and your friend is telling you to stay the hell away from this stock.

I'll stick with the Oracle of Omaha. :)

Do keep in mind that he rather famously avoids investing in tech companies.

He has since capitulated. He now regrets not buying Google low when he had the chance.

http://fortune.com/2017/05/06/warren-buffett-berkshire-hatha...

Interesting, I actually had no idea. Thank you for the link.

In which case, I wish you well in your purchase of under-valued SNAP. May it soon be considered overbought.

Buffet also uses metrics like Price / Earnings. Not sure he'd be interested in a company that posted a loss of 2Bn on revenues of 150m.

They sold at 17$ (ipo prices) not higher. So right now, both sides are equal.

Not really. Retail investors have netted $-7 while "insiders" netted $0. This is of course assuming that they've held on to this day.

Snap employees can't actually sell any stock until 6 months after IPO.

The employee stock is still in lockup period, so they saw exactly no profits on this as of yet.

This article is taking about July 31 as the earliest lockup expiration, but not clear as to which class of stock this is for: "The perceived catalyst for an impending drop is a total of 1.2 billion fresh shares that will become available for sale after post-IPO lockups expire July 31 and Aug. 31" Source: http://www.marketwatch.com/story/snap-short-sellers-bet-on-a...

If the company prices the IPO in a way where there is a sustained increase in the stock price, people complain that the company irresponsibly left money on the table for themselves and their employees.

If the company prices the IPO in a way where the stock drops below its IPO price (FB, SNAP), people complain that retain investors who bought on opening day are now underwater.

Heads I win Tails you lose?

Nah cause I bought Bitcoin on Snap's IPO instead.

As skeptical as I am that Snap will ever be a moneymaker, this data point is not meaningful in any way. Facebook traded below (often _well_ below) its IPO price for the first 15 months on the market.

I don't think the two are equivalent however.

Agree with you here -- Facebook had a well-formed mobile strategy, the only question was whether it would work. Once it started to work, the stock took off like a rocket.

Snap is a much bigger question mark. So far their plan looks to be "Do what Facebook did, only for AR/VR". Except Facebook and Snap will be splitting the market; where Facebook had no competition and absolute dominance before they IPOed. Facebook is obviously playing to win on Snap's home turf. Even if Snap is successful, Facebook will make it very expensive for them.

I haven't been following SnapChat too closely, I know they made some glasses not too long ago. It is surprising to me that they are trading on the ID that they will be more successful in AR/VR. I can't imagine have invested nearly as much into AR/VR as Facebook/Oculus. Amount invested doesn't mean success for sure but I expect Facebook to be at the forefront of AR/VR at least in the near future.

My understanding is that the glasses were little more than a gimicky way to get more use of their platform. Felt kinda CueCat-ish to me.

AR is unfortunately such a broad label, covering an enormous variety of implementations from dedicated headsets to phone cameras.

I'd argue Snapchat delivered one of the first mainstream AR 'hits' - many of my friends can't get enough of their AR photo filters. To be fair, many of them are extremely impressive tech demos, fluidly augmenting the user's face in real time video. Whether that's a meaningful strategic advantage is another question!

Right; AR is significantly less useful without a massive data platform backing it up. But the real problem is that Snap doesn't really have too many paths for growth that don't run into Facebook's existing network effects.

Facebook is already a top aggregator -- and already has a lot of preference data from billions of users. Those are enormous network effects, and even if Snap is hugely innovative, Facebook will always be able to replicate Snap's products much faster and better than Snap will be able to replicate Facebook's network effects.

Facebook's IPO was botched which caused a pretty big slide the day of the offering. The next two weeks it continued to go further below IPO price to -50%. Quarter after quarter analysts questioned if they could maintain growth and profits.

Facebook was profitable before it went public, and faced serious strategic challenges immediately post IPO (specifically, mobile was exploding and Facebook's mobile story was not good -- it didn't even have advertising).

I guess the meaningfulness of this data point is that people are dubious that SNAP will succeed long term. But that's somewhat tautological: if people thought SNAP would succeed, they'd buy it.

Facebook's mobile story 'was not good'...but it was clearly just a missing set of features in a product that was ripe for infiltrating mobile and they had the cash to buy to eventually buy instagram.

The question is whether Snapchat is fundamentally flawed or a few features away from becoming a strong company.

It just seems to me that they have too much competition against Facebook...a behemoth that's still innovating.

If some company came out with a cool twist on search after Google, I'd be bearish on them as well.

Alexa amazon is the next gen search.

How exactly have they been innovating in the last 5 years? They bought Instagram and WhatsApp and added SnapChat features to them

They're still an innovative company. They have one of the world's strongest engineering organizations and an executive team that has the vision to jump into new, hot areas. By all measures they're still innovative especially for their size...

I've seen a big shift among my friends (all below 30) social media usage in the last six months.

Used to see a random one-off Whatsapp story. Now I see 2-3 stories every day.

Instagram stories are much more popular. See anywhere from 5-20 stories from friends as well as brands.

Point is, people who use these stories will never shift to Snapchat now. Even if it doesn't grow Facebook's audience, these features will plug the leaks

Fb also bought IG at their IPO time and WhatsApp 2 years later. Both combined should be worth over $100B today. Compared to the roughly $20B spent. Obviously FB is still worth over $300B if we hypothetically chop $100B off. Far above IPO still. Just saying that FB had multiple things go very well for them to go from merely profitable at IPO to being the giant it is now -- mainly mobile exploding, but other things too.

This doesn't matter too much, but it also feels like Snapchat has more competition in a way too while growing. Besides other social networks and FB copying them, Snow is gaining ground in Asia right now. FB primarily had regional competitors limited to one main country (like VK or Orkut in Brazil). I could be wrong about this though.

Google Plus was a very real competitor when they launched (right around the time of Facebook's IPO), it was a very similar situation to that of Snapchat vs Instagram. Huge user growth very quickly, but most of it due to it being attached to Gmail. Not saying Instagram won't remain a real competitor to Snapchat, but it's possible that over time users will go back to their previous habits.

Personally, I never post anything on Instagram Stories, but I do view them because they are there. I have my Instagram feed curated for my Instagram audience (which is very public and intended for things that aren't private), and Snapchat for my Snapchat audience (which is private and intended for only friends and family). I know many others do the same.

IG has a much more active and diverse audience than plus ever did. In fact they are the king within their own world, where as plus was a me too product.

I just think they’re different worlds, with diff goals. Snap is more about your honest moment / communication thru pics where as IG is your idealized life.

Yes, IG is king of the general photo sharing social networks, which is different from what IG Stories and Snapchat do. That's why I brought up the comparison to Google Plus, Google did a lot of stuff that Facebook did, and Google Plus was an attempt at bringing a lot of these services together and create a Facebook competitor.

Like IG Stories, Google Plus had crazy fast growth at first, they hit almost 30 million users in the first month which was insane for that time and even today. They also had a very diverse audience. But, just like Instagram Stories, those numbers were only so high because most of their users were "users" because they were already partly on the platform through Gmail, like most IG Stories users were already IG users.

Look, I'm not saying IG Stories isn't a real competitor, but saying that Facebook didn't have competition during their IPO like Snapchat does is not true. Many people were predicting that Google Plus could kill Facebook. Read some articles from that time period, there was a lot of talk about that.

That's because many people have been looking for FB's demise for many years now. And generally people are pretty pro-Google. Especially the tech community. Including places like HN. So of course there would be articles and talk of Google+ being a threat. But it was always fluff.

There's articles to this day spelling the doom and gloom of Tesla. Just like there have been many for the past decade. It has always been one of the most shorted stocks. This isn't directly analogous, but just because a large amount of people believe this doesn't mean there aren't also a large amount of people who don't. Aka these people won't have hindsight bias either.

Many people also did not think Google+ was ever a threat, myself included. Google+ was always the butt of jokes with my friends with their inflated user numbers. So there isn't any hindsight bias from me or my friends or many discussions and articles I read during the time that didn't take G+ seriously.

IG stories isn't identical to Snap stories yet. IG is starting to think about allowing you to limit who you post content to. I assume this will be done with nice UX. Then the direct comparison of Snap and IG stories can be made. For now, IG stories main ground it has taken from Snap is unlikely to go back to Snap. People or companies with bigger audiences. IG makes more sense as a place to post your stories for these users.

It's likely that IG stories ratio of users who only consume stories is much greater than Snap. And the avg IG story has many more viewers. But Snapchat likely has many more stories posted.

Google Plus was a last ditch effort by a company to get, and keep, any kind of foothold in a market that they continually failed at. It was to my knowledge, at the very least, their fourth attempt (Orkut, open social, Google Buzz, Google Plus... am I missing one?). Calling it a "very real competitor" seems a bit overstated.

Like my comment below states, Google Plus grew to 30M users in their first month and 90M by the end of the year. During this time they were considered a real competitor and many people were predicting that they could dethrone Facebook and that there is nothing that says another competitor won't come along and do to Facebook what they did to Myspace.

Sure, looking back now it's easy to say Google Plus was a failure, but at the time people were really excited about it. Check out this graph of their growth:

And again, the reason for my post is that I wanted to point out there were people worried about competitors taking away market share from Facebook during their IPO just like there are people worried about competitors to Snapchat. It's only now that it's easy to discount those competitors because we see how it played out, at the time people were really excited about it, check out this graph: http://i.imgur.com/yQU2Y2z.jpg

There were tons of skeptics of Google+ from the get go. Their way of getting users was dubious at best. We don't know how many users were ever true active users vs people who signed up because of having a Google/Gmail account already and checking out Google+ once or twice. Or creating a Google+ account and never coming back or coming back accidentally. Those all still counted as active users. It isn't just hindsight. People including me were calling this from day one.

IG has grown around 45% in the past year. Snapchat has grown half that, close to 23%. IG is the more established social network and growing faster. That's the worry. Sheer numbers make it look so much worse. Snapchat added around 50M new MAUs over the past year. IG did over 4x that at over 200M.

I remember seeing charts similar to the one you posted and dismissing it as BS back then too. As did others. It's a vanity metric. Without knowing the engagement, it is mostly meaningless. And most signs pointed to there being weak actual engagement. Especially if you look past those user's first one or two enhancements of G+. Most prob never engaged again. The same can't be said for the others. FB's first 50M users were by and large engaged. All the others were too, to different degrees. All far above Google+'s.

> am I missing one?

Google Reader and YouTube both predate G+, and were specialized social networks. One for links of any kind (you could share anything), and the other for videos.

Google+ wasn't real user growth. The number of active users was high because of such a weak definition reeking of BS.

The actual engagement rate was always weak (I'm defining it as purposefully reading or posting to google+).

Within a couple months, it was essentially nothing. I don't think Google+ ever sniffed 100M monthly active users after the initial two months of going completely public and having the hype. I'd think if it was 9 figures in active uses for the first few months, it was because a majority of people tried it once or twice or just did the Google+ profile creation. This is big because it means Google+ was never a real competitor in terms of popularity.

Google+ never felt like a threat at all to FB. And within a few months of public availablity, didn't seem like a threat of being a prominent social network behind FB either.

My comment got too long and are two different responses. Splitting seems to make sense.

IG is around 725M monthly active users now. I think their DAU is roughly 450M. A year ago, they were at around 500M MAU.

Snapchat is at 170M DAU. It was at 145M DAU in August 2016. It is now at roughly 330 MAU and 290 MAU in August 2016 (I know they were at ~300 MAU in November 2016).

IG is outpacing Snapchat by percentage of growth on top of sheer numbers while being far far larger, of course benefitting from being around longer. Snapchat has always been the underdog to Instagram.

There's no comparison of Google+ to FB in 2012 and Instagram to Snapchat in 2017 or any of the last few years. With IG always having been larger than Snap and recent user growth of IG massively outperforming Snap too -- "users will go back to to their previous habits" doesn't fit here or in Google+'a case.

There are likely few people who switched from Snapchat to just IG in recent months while treating it like Snapchat (mostly DMing and doing stories) outside of bigger online names using IG stories. There's nothing to reverse of going back to old habits. Meanwhile with Google+, it never even became a habit. Most people never really used it. It was a one or two off thing for the vast majority of users, mostly perpetrated by the pushing of existing users to try Google+.

If your point was about people going back to Snapchat stories over IG stories, I'm not so sure. Just like you, friends still mostly post to Snap stories. IG for me is like 10% of friends or acquaintances posting regular stories. But a ton of people popular accounts posting. I don't see this changing. So IG stories will also always be bigger than Snapchat if current trends stick.

> Google Plus was a very real competitor when they launched (right around the time of Facebook's IPO)

Has Google Plus at any point ever had as much as 2 percent of FB's active users? If not, what metric do you use to consider it a "very real competitor" at some point in time?

As of 2015 YouTube reportedly hadn't turned a profit but was breaking even [1, 2]. If the world's number 2 website's business model wasn't turning profits after 9 years... we can probably expect the same for snap. Definitely makes you wonder about the viability of the ad revenue model.

[1] https://www.wsj.com/articles/viewers-dont-add-up-to-profit-f... [2] http://www.businessinsider.com/youtube-still-doesnt-make-goo...

Youtube didn't try to go public before becoming profitable.

It's an evolving market. TV / apps / video are all converging. You can look at the first 10 years of YouTube as customer acquisition. It's a long game. Snap is likely similar as is twitter. This realtime private zeitgeist.

Financially it does not matter for the founders that much anymore. Significant wealth has already been transferred and cashed out:

http://www.nasdaq.com/quotes/insiders/spiegel-evan-1016829

There are only a handful of people on the planet that could reasonably claim that $1.4 billion doesn't matter that much to them (and none of them are likely to actually hold that belief).

It's an absurd premise to claim that 80%-90% of someone's wealth does not matter much to them. Not to mention implying all sorts of horrible things about their character in the process (to claim what you are, is identical to claiming that Spiegel is ok with losing that money as opposed to keeping it and doing something good with it, that he would feel indifferent to the contrast of said scenario).

I believe the point is more about the marginal utility of wealth and what additional products and services $1.4 billion can buy relative to the $250+MM net worth they have now.

$250 million means I need to fundraise to build my spaceship. With $1.4 billion, I can get started on a Dyson sphere. Depends on your goals.

If you think you can completely encompass a star for quarter the price of an aircraft carrier, damn what's your secret? :)

It's possible that aircraft carriers aren't purchased and constructed with cost as a factor. Or if it is, a higher cost may be considered a positive. ;-)

You just have to build one little robot capable of building another robot out of lunar regolith.

Get started

Can't buy a major Hawaiian Island like Larry Ellison quite yet with $250M :P

What does $SNAP need to do to deliver on the hype? Is there anything that can make $SNAP a good investment for anyone other than the parties involved in trading the IPO?

I tend to be bearish on $SNAP in general, but I'm interested in the discussion. How do they right the ship and boost back up to that $25-30 range? What's their play?

+1 this. I've asked multiple people and ideas are mostly mixed on what Snap's strategy should be going forward. Being a social app will definitely be a difficult play. IMO they could try to leverage their AR expertise to do, well, something. But social definitely seems like it will be tough.

Good luck to the team though. It must be a stressful time there.

The fact that no one is responding with ideas tells you what you need to know.

> AR expertise to do, well, something

Is it really a big expertise now? I think it was a big deal when they started those face filters but now even small players have that stuff. For example, hike: https://play.google.com/store/apps/details?id=com.bsb.hike

It's not really clear to me, anyway. Instagram has been unabashedly poaching their features and users, and it's working really well. Snap needs to find new ways to continue to differentiate themselves with new features and maybe hardware like Spectacles, but with so much overlap in user-base between Instagram and Snapchat, I have no idea how they'll be able to keep Instagram from continuing to challenge their offerings.

- Positive user growth numbers, not flat or negative

- Positive revenue growth numbers, not flat or negative

- New features launched and positively accepted in the market

So they need to do almost everything right and have luck on their side with things like positive acceptance. A betting man prob doesn't like all those bullet points needed.

Given the product and strategic path they're on the only thing they can do to create value is restart user growth. Their business model depends on them becoming a powerful brand advertising platform (brand advertising is when companies want to spread general awareness of their brands and influence the public's overall impressions of what a company stands for, even if it is far removed from any actual moment of purchase; TV has traditionally been the dominant brand advertising platform, but as cable TV is beginning its decline into irrelevance the top spot is up for grabs). They're not into collecting super detailed info on users, so advertising can't be too targeted, and they're not pushing a shopping angle either.

And in order to become a compelling brand advertising platform they need massive reach (i.e. at least a billion users).

How can they restart user growth? Well, that's probably going to be pretty hard at this point. I suspect they'll need to broaden their appeal from their initial teens/college/just-out-of-college user base to an older and more diverse crowd (just like Facebook and Instagram did). That will probably require some UI redesign to make things a bit more intuitive to navigate, and perhaps other feature changes that make it a more attractive destination.

However, I think it's basically all but impossible for them to restart the growth engine at this point. A lot of people have heard of Snapchat, tried it, and decided they don't like or just don't see the point when they already use Instagram.

Making matters worse is the fact that their initial market is incredibly hard to hold on to. Things almost never stay super popular across multiple "generations" of high school and college kids (except for default utilities that everyone at every age uses). In other words, it's unlikely that Snapchat will be popular with high school and college kids in five years.

So, I suspect that as their metrics stagnate and decline over the next few years they will increasingly focus on a series of moonshot new product ideas (like Specs) and hope that something sticks. But there's little reason to suspect that they'll be any better at building a random new product than any other start-up or big company out there (and, in fact, I'd argue there are some good reasons to think they'll be worse).

As is probably pretty obvious, I'm quite bearish on Snap these days. I was extremely bullish a year and a half ago, but they've just been so slow to execute when it mattered. They lost their wave of growth. At this point, I'd be surprised if they can catch another.

Your comment seems very well thought out. Can you expand a bit on why you think Snap would actually be worse at building a random new product than any other startup or big company?

Thanks! That's nice to hear.

From what I can see, there are three reasons why they are in a worse position to create a new, successful product than any other startup or big company.

1. They are already pretty big and successful. It's extremely hard for companies to really shift focus unless they're truly desperate. Opportunities that are great in the long term usually seem painfully small, or impossibly distant, in the short term, and it's hard to attract and motivate talent internally to these projects.

2. They seem overly confident. This is annecdotal, but they do seem to have a culture that breeds and rewards a bit of cockiness. That doesn't bode well for them rewarding people who push a humbler view of the company and empathize deeply with new kinds of users.

3. Their grand vision isn't very good, and that likely reveals a deeper lack of understanding about life and human nature. From what I understand, their guiding mission is roughly to help people share experiences in real time and more or less live in the moment. The thing is, most people don't want to share all that much of their lives with many people - most people want to escape their own lives most of the time. And for those who do want to share, there are many different more or less equally good ways to do it. Snapchat's core functionality is easily comoditized. There's no benefit to scale for Snap's users, given the company's vision. Yet they don't seem to realize that or care. And that's a critical mistake. It doesn't exactly build confidence in their ability to execute.

That said, the fact that they see themselves as a camera company does bode well. I suspect we will be a much more camera-centric culture in five or twenty years than most people think. And their playfulness is a great way to overcome the creepiness of cameras. They may end up in the right place at the right time to ride that wave.

Regarding your third point....are you sure about that? I feel that many people do want to share the interesting moments (more or less) of their life online. If this wasn't true, Instagram wouldn't be such a popular platform and a threat to Snapchat.

That being said, I'm bearish on Snapchat, at least in the short term. I don't see much opportunity for growth, not unless it manages to capture the hearts and minds of the next budding wave of teens.

Oh for sure, people want to share stuff. It's just a matter of how much, how often, and with whom.

Maybe I wasn't clear. From what I can tell Snap is focused on connecting people in the moment. It's more about giving people a way to share the little adventures of their day with close friends than it is about giving people a way to share a few big events in their week, or giving people a way to broadcast their lives to a mass audience of strangers (they have this functionality but de-emphasize the use case). Facebook and Instagram are more about sharing fewer but bigger moments - though they work okay for sharing more and smaller if that's what you want - they're one of the many good enough options.

I agree with your point about the next wave of teens. And I suspect that will be tricky. That said, maybe if it never catches on with the olds it'll be easier to stay popular? Maybe they can just own the teen chatting niche?

Facebook is an example of a company that continued user growth very well. Facebook was originally just for college students and had a very dating-site-ish feel (at least as I experienced it), but as Facebook grew, they transitioned the platform to accommodate all users from all walks of life, and now their usage numbers are astronomical. I don't see Snapchat doing this very well, their design is very insider-y, their marketing and communications seem to continue to target western millennials, and there's no clear path to adding features or platform dynamics that will bring others in.

It seems to me like a lot of their "value" is in how much more engrossing their ads can be than other display ads. They also have a whole section of their app that shovels "content" from magazines and such, and that content is pretty much just more advertising. I'm sure those outlets pay to be there, or pay for prominent placing, etc.

But those should be easy enough to copy. And I find the content thing weird, it feels bolted on to an app you use to talk to friends. I am bearish on them, I think it was smart to IPO when they did.

I was thinking Snap might try to buy Musically before their IPO or around IPO time. It would cost more than IG did to FB, making the purchase a much larger deal for Snap, but it would be a way to allow for the user growth and connectedness to the young crowd to continue. I'm not sure how big Musically is now, just seemed like it might be a decent gamble for Snap to try and prob provide the most [media] hype too.

Maybe they should try to copy facebook's social network but remove features a good subset of people don't like and stick to more of a private image?

Found the CEO.

They do AR & Marketing amazingly and hardware quite well. I am not sure a social network is their best business model though. Hopefully they can pivot to something else using what they are great at.

I like to think I'm not totally underneath a rock, but I don't think I've ever seen their hardware in person. And if I have, I didn't know that it was their hardware. So they either don't do hardware well, or they don't market well.

And even if they did all of that well, is that worth $25-30 per share?

Does "doing AR amazingly" go beyond overlaying bunny ears and whiskers on a person's face? I'm not sure how much longer they can ride that out, and besides, Instagram showed they can do that well too. Actually, anybody who can follow a basic OpenCV tutorial can do it.

Another story on HN shows what developers are doing with Apple's ARkit, and it's more impressive than anything I've seen from Snapchat.

Anything they do FB will steal and put in their products

They don't. Snapchat is a feature, not a product. They should have sold to Facebook when they had the chance.

Now everything novel they had (expiring message, stories, filters) has been successfully aped by Facebook and incorporated into Instagram, and because Instagram offers a UX that isn't intentionally shitty, they've already shot past the Snap userbase.

Sell your stock now, and don't be surprised if they're irrelevant/bankrupt by 2019.

Pardon my language but: no fucking shit. $20bil was unbelievably overpriced.

This is the one major tech stock that I simply do not get. ~$125 a user is insane.

Facebook is >$200 per user.

For Facebook, it's not unreasonable. For SNAP, it is.

Facebook is a panopticon with a massive dataset on each user, and has a pretty substantial moat by way of users 'punishing' each other for leaving, among other competitive advantages.

Snapchat is a trendy app that could easily become uncool, and when it does, I don't see how users feel much of a penalty for leaving in the same way FB users do.

> Facebook ... has a pretty substantial moat by way of users 'punishing' each other for leaving

What do you mean by this?

I think it's because you might lose contact with people if you don't have a FB profile.

If you're not on FB and don't interact with your 'friends' frequently, people kinda forget you exist and stop talking to you, and friendships wither. Even geographically close friendships.

Kinda like being ostracised.

Am I the only one who thinks this line of thought is bullshit??

I am off FB for more than a year now, and I am just as much in contact with my friends as always.

That is excellent for you. But you are not the world. I interact with people I'd label as "friends" where Facebook (or Facebook Messenger for some) is the only avenue I have for that interaction.

And for some, it's the only avenue I'd want to use.

I never said I was the world, but please take my statements in the context of close personal relationships.

If ones requirement is to maintain acquaintances, then fine. However, I was disputing the parent comment's assertion that leaving FB is akin to a punishment.

For the record, I have never used FB. I hated it from go.

I also can't point to any real studies; all I've got is anecdata, much like your personal experience.

That said, I have heard from multiple people variations on trying to quit or use it less, and getting grief from family and friends for not taking part. And I personally get passive-agressive commentary from my family for refusing to take part - "What did you think of - oh, that's right, you never saw [cousin]'s baby pictures because of your Facebook thing."

Facebook grew so much, almost everyone has it and its use cases are versatile (and therefore the data collected). Snapchat is really just used by younger folks with almost no financial power for chatting in the weirdest way.

Anecdotal: I, and a large chunk of my friends and acquaintances use snapchat regularly. We're 30 year olds making good money. In the same way that some messages are best suited for a text message, some for an email, and some for a phone call, there are some messages where snapchat is the best medium.

For what kinds of messages is snapchat the best medium? I've tried using it but can't understand its purpose.

that's not the appeal. Snapchat is coveted by it's users because of ephemerality. It grew in reaction to your parents being on fb; in reaction to public, permanent social communication. The users love it because they think it's more authentic - that they're not rehearsing for a contrived selfie or food porn. It's cool cuz they're shooting the shit and not going for likes, and no one outside their sphere is gonna see it.

So, like a WhatsApp group basically? Being able to send photos to a specific subset of your contacts?

It's whatsapp if the photos disappeared in 10 seconds so that nobody could save copies of unrehearsed (but I'd argue genuine) moments.

Everything you said other than ephemerality applies to every other messaging platform, including Facebook Messenger. How does ephemerality help you shoot the shit better than a text message?

I believe FB messenger now has secret/disappearing messages as a response to snapchat, but before that it was a pretty clear distinction: if I send you a goofy selfie on snapchat it's gone in 10 seconds. If I send you a goofy selfie on messenger, you could always scroll up to see it again. And share it with others if you so choose.

I guess the part I'm missing is why you care whether the goofy selfie disappears.

It's psychological. As soon as you put something on FB, Twitter, etc. it's no longer "yours". Snapchat makes conversations and pictures disposable. It's just fast and ugly. And it powers the app by nudging by users into creating content to send to a friend without having to worry about rehearsing for the perfect picture/tweet/etc.

Also it's private. Facebook is mainly used by people with friends and family. Celebrities/notable figures rarely interact with others outside of Twitter. But even with Twitter, the interactions are permanent -- even when tweets are deleted.

On and it's great for sexting, which let's not kid ourselves, was the original appeal and still is for a lot of people in their target demographic.

Ya, you're not getting it. First, a transcript of your communication is not desirable to many (if you find this puzzling, it's because you're old :P). Second, FB Messenger or any chat client you have to manage the groups (forget it).

How are Snapchat's group messages different? I thought it only did one-on-one.

because it's not? Snapchat stories dude - that is the real conversation.

Yes, this ^. I don't understand it either, and I'm not even THAT old. Perhaps you need to be American to get Snap? No clue.

I described it in another comment here: https://news.ycombinator.com/item?id=14740274

Like nick, I'm close to 30 years old too. Snap is big in all my social circles. Mostly people between mid 20s to early 30s. Less popular the older you get, but still significant. Regardless, all have enough buying power.

Even if Snap never gets much traction past people in their 30s, that's enough of a market to expand for quite a while. The 18-34 demographic is the most coveted. The pre-teen and teen market isn't something to completely sneeze at either.

Popular does not mean profitable! I feel like the tech industry has confused the two over and over again.

Of course. But getting popular is an important part of being a big social media company. Profits of $100M on under $1B in revenue isn't going to help things much for Snap if that's not growing because they don't have enough users.

Facebook was having decent growth at the time. Snap is undergoing massive competition from both Instagram, WhatsApp AND Facebook. Personally don't believe in the stock. Perhaps at $5 to 7 a share I would buy in, but I'm not really seeing it.

Facebook has been profitable each fiscal year they've been public. Their first full year public they produced $1.5 billion in net income.

Facebook is tracking to a ~31 PE ratio for fiscal 2017, with a growth rate that is still high.

$14 billion in net income (fiscal 2017 speculative), is a lot more important as a metric than $200 per user. If they push that net income up to $30 billion over the next four or five years (very plausible), at 24 times earnings (at that point, speculating on a $720b market cap), maybe their per user climbs to $300+ - it still won't matter, the net income is what will matter.

Snapchat doesn't possess any of the positive financial qualities that Facebook had, to square against the high per user value.

Facebook has so completely monopolized social media it is successfully driving SNAP out of business. Hence its share price is accurate.

Facebook it ain't.

FB has four massive "empires": FB, Messenger, Whatsapp, Instagram. They haven't monetized Whatsapp or Messenger much - maybe they never can, but for now that's potential opportunity. They have a strong grasp on their massive market share. They still have more monetizing to do on Instagram, which is already doing well financially. IG alone is worth more than Snapchat. FB has a lot of cash and keeps piling it on too. They were always profitable and raised a ton more than Snap, including the money they didn't lose by pricing the IPO at just the right price. Only hurt them for a short time.

FB has more immediate ways to expand too, most likely. We already saw them transition from relying on getting a cut of things like plugins and games in FB to that not mattering at all. They could try to go into payments more, maybe an Adsense alternative -- likely the only company capable of doing so too. Yahoo failed at doing it a decade ago and any other company has always been much more niche with much more worse payouts.

From an investors standpoint, I view Facebook as four companies

-Facebook, 2 billion MAU

-Messenger, 1.2 billion MAU

-WhatsApp, 1.2 billion MAU

-Instagram, 700 million MAU

Messenger, on its own, is easily a $50 billion company.

I'd like to hear what revenue (yet alone profit) Messenger has on its own that can justify a $50Bn price tag.

None revenue, just users. Based off their MAUs, if Messenger was an independent chat app they would fetch such valuation. I peg them at $40/user, which isn't so crazy considering WhatsApp was purchased at $35/user and Instagram at $30/user. When Facebook Messenger gets around to copying WeChat (the whole payments and official accounts ecosystem) I expect them to rake in merchant fees for big profit.

WhatsApp presently has none revenue either.

Speaking of FB Messenger/WhatsApp getting around to copying WeChat, what's taking them so long? Are the US, or non-China, markets simply not ready to embrace a WeChat style all encompassing app?

Full disclosure, I've never used either FB Messenger or WeChat, but I do use WhatsApp, so I'm just basing this on what I hear.

I think it just takes a long time. Messenger is already trying to emulate WeChat, they are just not there yet. I believe Messenger is the only app in the world that's positioned to match WeChat's ecosystem. They've been copying WeChat over the past few years. They copied the voice message feature (very popular in china), QR contact scanning, Games, Mini-apps (Messenger bots), and Wallet (Facebook Pay). Other features that come to mind are stickers/sticker packs and "stories", although those were copied from several companies at once.

On market opposition, I think the biggest obstacle are the payment vendors, specifically Visa and Mastercard. Alipay and WeChat wallet had an easy time taking off because they weren't competing against credit cards. Visa makes so much money in its present rent-seeking market position they have no incentive to innovate.

Instagram and WhatsApp have been acquired to a great extent in order to eliminate competition. That more or less justified their acquisition price -- it was cheaper to buy them than to compete. Messenger is a different story.

Ah, so that's why they split it off from facebook! Nice +25% to valuation.

I think Snap's stock price will continue to fall (to under $10) and then at some point it'll be acquired, possibly by an asian company or investment group.

Lock-up expires 29 August [1]. On the other hand, they have $3.2bn of cash and short-term investments (as of 31 March) while burning about $600MM of cash from their operations (FYE 31 December 2016) a year. That's 5 years to get it right.

EDIT: insider lock-up at T+150 comes in at the end of July.

[1] http://www.nasdaq.com/markets/ipos/company/snap-inc-899497-8...

> Lock-up expires 29 August [1].

Its actually the end of July for the first and most important IPO lockup expiry.

> The first key lock-up date for Snap will occur roughly 150 days following the IPO. At that point, pre-IPO investors, such as company insiders, will be allowed to sell their shares. The second major lock-up date applies to 25% of the shares that were offered in the IPO itself. Of the 200 million total IPO shares, 50 million of the shares will be restricted for one year.

Founding team cashed out pre-IPO for hundreds of millions each.

I think it is safe to say that the IPO was a total scam. The company was never profitable, and numbers never made any sense.

I have a bridge in Brooklyn up for grabs (cheap) if you still think the valuation was based on ridiculous data points such as active users, etc.

People already lined their pockets up and you will be reading another P.R piece on how great of a businessman Evan is within the next couple of months.

Spend all of the funding on aggressive marketing to get the numbers up pre-IPO, file for an IPO and cash out. Rinse & repeat.

> I think it is safe to say that the IPO was a total scam.

Precisely.

Is it really a scam if there was no deception and every buyer knew what they were getting into?

is pyramid scheme a scam?

Yes, people that buy into them are just dumb.

Not sure this is really news worthy.

They've been heavily shorted for a while now and their puts are expensive. But really 1 Billion new shares could flood the market in just a few more weeks.

To put it in perspective I believe Twitter, the other poster child for giving away options, had about half that amount.

Even the IPO underwriters are starting to crack. Credit Suisse used the stock drop to keep an "outperform" rating on the stock while lowering its target from $30 to $25.

IMHO Snap will do just fine for hte next year. They are big enough that companies will carve out a piece of their marketing budgets for Snap. It won't be until a year later when they have enough data on how well their Snap advertising is working that they'll decide if its worth it or not.

Following snapchats fluctuations about its stock price is somewhat interesting . To be honest though I'm getting fatigued on this. I remember when Facebook IPOed and we were getting similar posts. The fact that Snap was able to IPO and get money to become more competitive will have to wait for a few quarters though.

I think the situation is not comparable at all precisely because Facebook did not have a larger network strangulating their growth.

I wonder if there is any precedent for a social network (or any large application for that matter) having their growth stalled to single-digits and then it picking up again.

To me, it looks like there is a very real possibility that facebook already killed them in the sense that they will never go beyond 250 million or so users, which does not support their valuation. So share-wise, they might end up a second Twitter, just with a much faster turnaround this time because user growth has already come to a grinding halt.

i wonder if the community realizes how bad those kind of overhyped companies makes us look to the general audience, with founders cashing out shortly after the stock gets public and everybody realizes valuation were simply absurd.

i don't think we'll have to wait for a long time before we see traditional investment funds and banks not willing to take part in that game anymore.

snapchat baffles me. It's just another instant messaging platform except that they came up with the idea of messages that delete themselves after a time period. The problem is that this killer feature is easily subverted by taking a picture of your screen. So basically, they have provided an instant messaging platform with one extra useless feature.

More to the point, this "killer feature" is easily cloned by a competitor and shows that the product creates no competitive barriers. Coupled with the fact that the cloner has a much better idea of their users and can target ads much more successfully, this creates a long road for $SNAP.

> More to the point, this "killer feature" is easily cloned by a competitor

This doesn't really agree with

> The problem is that this killer feature is easily subverted

Let's let one company implement the feature before we decide it will be easy for competitors to implement it too.

WhatsApp, Instagram and FB all have it now. TBH I only see widespread use of it on Instagram, but everyone around me seems to have stopped giving a crap about Snapchat since.

You missed my point. Do WhatsApp, Instagram, or Facebook Messenger have working ephemeral messages? Or do they have marketing that claims they have ephemeral messages?

The feature is fundamentally impossible in exactly the same way as DRM, because it is DRM. You're sending someone a bunch of data and saying "now, you promise not to look at this, right? Except once."

As someone who works on Instagram Direct, I can assure you we have ephemeral messaging.

How do you stop people from recording their messages?

Snapchat takes two approaches (that I know of): First, they don't stop it, but the messager is supposed to be notified when it happens. They know this doesn't work and can't work, though; avoiding screenshot detection isn't even considered a reportable bug. (see https://hackerone.com/snapchat )

Second, they have a legal barrier, in that using a third-party client to communicate over Snapchat violates their terms of service.

Notably, neither of those makes the messages any more ephemeral. This makes sense, because stopping people from recording messages that you send them is not an achievable goal. Barring some sort of supernatural influence, it's no more achievable for Instagram than it is for Snapchat.

  More to the point, this "killer feature" is easily cloned by a competitor

... which is why I was skeptical of Groupon's value from the outset.

And much has been written of that, and that's exactly the same way I feel about Uber.

(And every time I mention that about Uber on HN, people point out that they can get Uber in any city in the world, so why would anyone who never travels use anything else?)

Too be fair, a big thing with all these social apps is network effect.

Snap had first mover advantage, which is nothing to scoff at.

I think it's just a consequence of a popular idea at the right time. And 2 killer features, self deleting shares(no percieved history) and it being super easy to select who you do/don't want to share with. Sort of an anti Facebook/public history/complicated privacy settings backlash spurred by a younger generation who grew up with Facebook always existing.

Quicken Loans came out with a service called "Rocket Mortgage" several years ago and I thought, "who wants to enter the likely largest financial commitment of their lives at the click of a button?" Turns out, lots of people... simplicity sells.

Anyways I think eventially once one of these big data hording companies goes under to the point of simply selling all their user data to the public in form of a paid search engine, and public/private key encryption is super simple and mainstream, things will change. I'd bet it might just be when Snapchat goes under;-)

If you're messaging someone to be fun or flirty, or just as causal friends, do you really want to see the random dumb things you said 6 months ago or 3 years ago on Facebook Messenger?

Every messaging app is essentially like one long email thread, whereas Snapchat provides real freedom to be spurious and in the moment without future embarrassment.

And anyone can secretly record anyone at any time in any interaction. That doesn't stop people from communicating freely.

I use it regularly with a lot of my friends and it's one of my favorite apps. Here's my take: The ease of sending and ephemeral nature significantly lower the barrier for what you'd consider shareable. Imagine you were walking down the street with a friend and saw something that gave you a casual chuckle. Something mildly interesting. If you were in person you might point that out to your friend, promptly forget about it, and carry on with your day. If you are by yourself, it probably isn't interesting enough to save a picture to your phone and send it via text message where the default is the image is immortalized in your photo library and text history until you delete it. Snapchat makes it so quick and easy that those little moments are now almost as easy to share as pointing to your friend if you had been walking together.

I agree that the innovations are not major, but each little nuanced feature in combination makes it so that people share the little moments in life and you suddenly have a small window into the daily lives of your close circle.

EDIT: I should mention that I have no opinions on its viability as a business. Just commenting why I enjoy using it.

The other, probably more important, innovation was that you have to take the picture at the same time as you send it - no loading from the camera roll.

Snapchat is like Instagram in the sense that it helps keep you updated on what's going on in your social circle, except it's on a daily basis with an extra dose of "comical" photo filters. It's more of a photo sharing platform than instant messaging.

With no knowledge other than using the app and from general bar talk, I saw this as a huge flop. I wish I shorted it. It may have potential, but I don't see what that potential is when their features are so incredibly easy to mimic. And no, SnapChat, I don't care what Puff Daddy did with Beyonce or whatever it is their news feed tells me.

As an excercise for the reader, would be interesting to test the performance of a buy and hold strategy of stocks a.) Going below IPO price, b.) Going below 50% IPO price. A second filter that can be applied is the time span between first day of trading of such event.

I can't understand what are they doing to not make any profits. They are selling ads. Server resources to exchange the pictures are a minor cost, so where is all that ad money going to?

If they stopped wasting money on development time making their UX even worse, or stupid stuff like Spectacles, or this: https://www.recode.net/2017/6/17/15824222/snapchat-ferris-wh... - maybe they would actually be making profits right now.

They have 1-5K employees. Even if you take a median salary of $40K, that's $40-200M/year. That's just the salaries with no taxes/overhead and no consideration that IT salaries are generally much higher.

Snapchat has 2000 employees roughly. But why?

And why does twitter need 4000 employees?

What do they all do?

edit: n/m. Their job postings are quite telling.

https://www.snap.com/en-US/jobs/

https://www.youtube.com/watch?v=oEli06ID6t8

>They are selling ads.

They do? Where does those ads show up? I've never seen ads on Snapchat, I get the feeling that most people aren't.

They had a "Discover" section at the top of the stories which are essentially sponsored stories companies (like Buzzfeed) pay for.

Now they've changed them and it looks like sponsored snaps appear in between your friend's snaps when you view their stories.

For your consideration, not a single share purchased is a voting share. SNAP’s shares should be closer to $13.

I'm curious, why $13? Why not worthless? (I don't believe they should be worthless, but I'm curious how you decided on the precise middle ground)

maybe twitter should buy them

Invest in the things you love and use most! What could go wrong?!

but dikpiks can only get you so far, no matter how wonderful we all collectively think they are. I think this was L.A.'s attempt at a Silicon Valley.

All my friends are turning off their Snapchat account to keep using Instagram that does the same + better photo features.

Is is much below the IPO price now

currently 15/62 but trending lower

This is before the lockup period ends when ususal new stocks drop

Based on revenue and flat growth, the company is worth about $4 a share. If it get's to that price I'll think about buying in, if and only if i think the company is going to turn it around.

I've made good money waiting for the time to be right before buying in. This stock is worthless above $8 a share.

Why not making money in the meantime going short?

Reply on news.ycombinator.com