Snap Misses User-Growth Estimate as Facebook Copying Takes Toll | Hacker News Reader

Snap Misses User-Growth Estimate as Facebook Copying Takes Toll

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Personal notes from the earnings reports:

- ARPU $1.05 vs 50c y/y

- rev. $181.7m, est. $185.8m (range $154.0m-$206.0m)

- adj. loss/share 16c, est. loss 15c (loss range 8c-19c)

- Short interest is down to 28% of float, financing rate 3.5%, 2 days to cover

- daily active users (DAUs) rose to 173 million in the quarter ended June 30 from 143 million in the year-earlier quarter and 166 million in the previous quarter. Unfortunately this will be compared with Instagram Stories, now one year old, had more than 250 million users as of Aug. 2, up from about 250 million in June and 200 million in April.

- $5.4M IN `OTHER' REVENUE MOSTLY FROM SPECTACLES

They seem to continue to follow twitter in amazing product awful company meme.

They tell people to look at their non GAAP numbers and then continue to roll out poor non GAAP numbers.

On the holy shit scale of things:

- Stock-based compensation expense ($)2,237,149,000 for the year, that's not a typo!!!!!

- Snap’s revenue was up 153 percent from the same period last year, rising to $181 million. But the amount of money it lost also ballooned, growing about four fold to $443 million.

So they increased revenue by selling dollars for 90 cents. That's not too encouraging.

Their stock just touched $12 in the after markets. You've got to feel a bit for the employee's who were locked up due to earnings.

The Positive:

One positive note, could be that now that they have release their disappointing earnings, the shorts may cover, providing the stock abit of a bump over the next week to allow employee's a tail wind that they can sell their shares into.

- Every Snapchat daily user creates more than 20 messages

- Evan and Bobby have agreed not to sell anymore shares this year

- 250 million snaps are saved to Memories every day

I don't understand the shock at the stock-based comp expense. Surely a couple of million is a drop in the ocean. What have I missed?

That's actually in billions, typically in financial reports the 1000's are dropped to make the numbers easier to read,my fault. I've made this clear now.

Gotcha, thanks

that's over 2 BILLION.

If it isnt a typo... its 2bn. Not 2mm

$2.2 billion is 13.5% of the company, and that's just in new stock grants provided as compensation over the last six months.

No, it's for the year.

And the way I understand it, they took a one time charge during this year for all stock based compensation ever. So it's really all stock based compensation ever.

They did not hand out $2.2bn in stock in 6 months.

The $637 million (or $750 million depending on when/how you look at it) was definitely handed out specifically as a bonus for taking the company public:

https://www.recode.net/2017/2/2/14465646/evan-spiegel-snap-i...

Fair enough, I did some more digging.

$1.99 billion in stock-based compensation was recognized in the first 3 months of the year.

$637 million of that was given to the CEO according to his October 2016 employment contract, which all vested at IPO in March 2017.

Then there's the pre-IPO employee RSUs. Those typically are subject to 4 years of time vesting, as well as a performance requirement that triggered when the company IPOed.

$1.3 billion of those were recognized as of March 31 2017 because they met their performance vesting requirement (IPO-ing). Those were probably the shares that had already satisfied the time-vesting requirement.

The company still hasn't recognized an additional $1.3 billion in stock-based compensation that will be recognized on its financial statements over a weighted-average period of the next 3.1 years. Those were probably issued relatively recently since they haven't met their time vesting requirement yet.

Remember the Simpsons episode where the CEO of the Internet company invites everyone to treat themselves to some free shares?

Three zeros (a factor of 1000)

> Stock-based compensation expense ($)2,237,149 for the year, that's not a typo!!!!!

Yep, to be clear that's in thousands of $. So $2.2 billion.

That includes a one-time $637 million RSU grant to the CEO immediately before the IPO, which was 3% of the company. The shares vested immediately at IPO and weren't subject to any continued service requirements.

I'm still struggling to put this number into context. Are they grossly overpaying rank-and-file engineers? Or are there just a lot of players elbow-deep in the cookie jar?

Take this with a grain of salt, but I heard that some new hires at Snapchat were getting $400k+ in equity, so that might be one of the reasons why it's so high.

There were some datapoints on /r/cscareerquestions of $320k of RSUs for new grads starting last year. Although the vesting schedule was 10%, 20%, 30%, 40%.

$320k/4 years sounds doesn't sound ridiculous -- probably on par with Google or FB.

I work at Google Seattle and that seems very high to me but I could just be getting paid less than others. I was an industry hire though

You are definitely paid less or are junior (IC4?). $80k/yr equity is pretty par at this level.

I dont know what IC4 means but I'm an L3? Note also that I'm in Seattle which pays less than Mountain View

IC3 === L3

and as you are in eng it's sometimes called T3

For a new grad that does sound kinda ridiculous. Stock is how you retain good performers, but new grads are usually unknown quantities.

Google was offering $200k over four years to some new grads a few years ago. By not ridiculous I mean compared to the market rates.

Stock is also how you align incentives with the company's interests. That is important for top talent and new grads.

I've heard second-hand reports of larger ones than that, but the vesting was a pain and, well, it wouldn't be worth as much today already. Maybe not the most attractive time to take that bet.

I don't have the experience to judge either, but I found it fascinating what some of the early employees made according to The Information:

> Early employees have stakes larger than many investors, executives and board members. Two early engineers have stakes worth at least $288 million, according to data from 2014 obtained by The Information. It’s possible the two hold even more, because some employees have received additional stock grants since that time. [...] Also doing well was chief strategy officer Imran Khan, whose stock and stock award holdings were worth $374 million at the opening price, according to securities filings.

> Other early employees, such as ad operations executive Philippe Browning, have stakes exceeding $100 million, according to the data. Engineering head Timothy Sehn and hardware chief Steven Horowitz have stakes exceeding $150 million, according to public filings.

it could be related to the large number of acquisitions they've made in the past year or two. a lot of those could have been for equity rather than cash

Well, they had 600 employees as of Dec. 31, 2015. They paid them 65.1 million shares from April 2015 - Dec. 2015, which is an average of 108,500 shares per employee. Using the $17 IPO price, that's an average 2015 compensation of $1.8 million per employee that year.

They had 1,859 employees by Dec. 31, 2016, and issued an additional 105 million shares in 2016, so that's an average of ~$960k per employee paid in 2016.

Those are averages, of course. But I think a lot of people made a lot of money this year.

I recall that Snapchat uses backloaded vesting (10/20/30/40), unlike most startups, so perhaps that explains why this figure seems unusually large. I don't necessarily understand the details of Black–Scholes but I think it allocates the expense according to the vesting schedule. So if I'm right, we're seeing the lion's share of those early grants (around 2012-2013).

Anyone want to chime in on how exactly this expense is calculated? I feel silly in that I don't even know if it's supposed to include the gain in value in the current reporting period, as opposed to just the FMV at grant date spread over the vesting period.

You won't need Black Scholes for these. Black Scholes is just a formula to estimate the value of a stock option. It doesn't say anything about when to allocate expenses, that's governed by GAAP accounting rules.

Under US GAAP, the value of stock-based compensation has to be recorded at the fair value at the date of grant, not date of vest. The date of vest is used to decide when the award shows up as an expense.

If a company is public, the value of an RSUs is probably just going to be the trading price. Snap's RSUs were a little more complicated because the grant dates of the pre-IPO awards were before the company was public, so they had to estimate the grant date fair value at the time using third party valuations, recent stock issuances to investors, and internal valuation techniques.

If you look at their initial SEC filing, Snap says it issued 169.9 million RSUs from April 2015 - December 2016, and estimated the values to range from $15.36 - $16.33. The weighted average value of those shares was $2.7 billion.

That's valuation. Now let's talk expense recognition. Those awards only show up in the income statement as an expense once they are expected to actually vest, after subtracting out expected forfeitures. That's why only about half of the $2.7 billion I mentioned above showed up so far in their financial statements so far. The rest of it will show up over the next three years.

He is going to have quite the tax bill this year :-)

So basically their cost of revenue is going up? They need to spend more to earn every dollar this year compared to last year, which makes reporting their overall revenue feel very misleading!

If they'd increased revenue by selling dollars for 90 cents that only would have cost $10.9m, much cheaper than the $443m loss. Maybe they should try that next time.

Yes. How does 'snap' lose $443 million? How is that even possible given it's a simple iphone app (sure android too). The only explanation is piling cash into massive fires 24/7.

Well for starters they agreed to spend $400,000,000 a year with Google Cloud. On a quarterly basis they are giving Google more than half of their revenue.

It's quite an impressive amount. I wonder what it would have cost them to have their own hardware and a small team of engineers to run it. I'm guessing maybe 10% of that?

For starters, roughly $200 mil was spent on acquisitions.

That wouldn't be an expense though, unless they wrote it down. Nitpicking, I know. What's $200MM after all ;)

> The company has been urging investors to think of it as different from Facebook.

I remember when Twitter tried to convince investors that it wasn't like Facebook and their stock is down from that period. You might not be like Facebook, but Facebook is going to try and be like you.

Totally anecdotal story, but I've been trying to promote my music as a hobby. The main social channels that independent artists use are facebook/instagram and google/youtube. There's almost no reason to use snapchat for promotion. There's no straight forward way to engage a new audience and broadcast your content.

Snap as it is today seems to be for already established entities to further engage their existing audience. I don't see a big market opportunity there.

I’ve read similar complaints in stories that claimed to have talked to "influencers"

My side gig is a small business. We advertise heavily on Facebook. I also have no clue how to approach Snapchat ads. How do I target our demographic on there? What data do they even have on users?

You do the influencer model where you pay someone to mention your business. Thats it. Can be really profitable of done well.

It seems to be more for brand advertising. Meaning you're not trying to convert people right from the ad.

A hundred times this. I'm in the same exact boat trying to promote my side project music, and the only time I ever hear anything about Snapchat, it's some beautiful woman on Instagram asking her followers to follower her on Snapchat. It definitely seems to be used to expand existing audiences and not grow new ones.

That's on point. By being overly closed they have pushed away the demand they have for advertising. I wish I could buy ads on their content based on location but cant (I buy media for others).

Make no mistake. Snap's (relatively early) IPO wasn't to raise capital for further expansion, it was to ensure founders had easy access to liquidity in a service they knew wouldn't thrive over the next 5-10 years.

If that's the case why did Evan Spiegel keep turning down buyout offers, including potentially a $30B one from google last year?

Was the rumored $30B offer from Google ever serious? This news only popped up recently with SNAP stock nosediving before lockup expiry for employees.

Another reason for turning down a buyout situation is the terms. They (Evan and the VCs) would not have such favorable terms as the IPO where they received substantial stock grants, liquidation preferences and retain absolute control over the company without requiring a large (any) financial interest.

What does he know that the rest of the world doesn't? I'd be on the lookout for insider buying filings

Snap's stock-based comp over the past 6 months: $2.2B

Google's stock-based comp over the past 6 months: $4.0B

Yep, this is pretty messed up, it will adjust hard.

Snap still has some of the best user engagement metrics in the industry which continues to attract top advertisement dollars. Whats worrying is the apathetic attitude of management to reduce cost and boost revenues rather than being blinded by the superiority of their product. When Facebook investors complained about poor revenues from mobile users, it took them no more than 2 quarters to show a remarkable increase in their ad revenue from mobile traffic. Snap would need this kind of aggressive revenue focus to stand a chance against the might of Facebook.

No, just read up on what happened to Twitter when they went down this route.

Snap is doing bad not because of revenue. Of course that too, but the core reason is their growth has slowed while it's clear that their core feature is becoming commoditized. It's not even about Facebook, there are many other snapchate-esque apps springing up around the world and snapchat can't do much about it.

In fact this is much worse situation than Twitter where they did keep their core strength to some degree.

Doesn't matter how much revenue they generate this quarter, if they don't exist a couple of years later like myspace.

Twitter stagnated years ago. yes they tried, but it was just adding ads and other crap. they never lift a finger to improve performance or usability. their site and apps still feel like 6+years ago. like nobody is even working there anymore.

Most people on HN bearish on SNAP...and I am too in the short term. The problem with SNAP at the moment it is HARD to spend money on ads. There is no open API that individual businesses / ad agencies can use to easily spend...meaning longer iteration cycles for companies trying to figure out creative etc and turn it into a profitable channel.

As long as they can deliver SOME value to advertisers in the form of app installs/ traffic to site/whatever businesses will find it and do SNAP's job for them - turn it into a profit machine once they have programmatic access. From what I can see they are copying FB's ad platform which is great...once that API is out there I think it will be a different game.

Or they could just end up like TWTR

The problem is more than it is hard to buy ads, they also missed their user growth target by a mile (24%). Slowing growth and losing buckets of money is not a great look.

Yes - one of the problems

Remains to be seen if those ads deliver, advertisers seem kinda muted on Instagram ads ROI http://marketingland.com/instagrams-direct-response-ads-have...

or they could try to only cater to premium advertisers and not be the cess pool of bad ads that programmatic invariably brings along.

I think Snap is pretty dead. Between Instagram and Facebook stories, I just don't see the appeal of Snapchat. Most of the time, if I want to send stupid shit to my friends, I do it in Messenger because we can laugh about it later, too.

Clearly people do use snapchap, so either you're right and they have hundreds of millions of insane people, or you're just clearly not the target demographic.

I'm not saying there aren't users. I'm saying that it's getting absolutely mauled by its competition. Obviously it's hyperbole to say it's dead, but it's definitely dying unless it can do something drastic. It's got no redeeming features that would make me want to use it over Messenger, Messenger/Facebook Stories, or Instagram Stories. I used Snapchat myself up until its competitors were released - so did many of my friends.

My point is it appears to be mauled from your perspective, but you’re clearly not the target user. If you were, people wouldbe jumping off of there as quickly as you did, but that’s clearly not the case.
It’s more likely you’re missing something and they do have a user demographic that is strongly entrenched. Of the users they do have they have strong user activity.
Take my 11 year old sister. She primarily uses snapchat and I can’t see her ever switching. She definitely doesn’t shop around these apps based off of some pro/con table of features.

Not the target demographic, 21 and I don't think there's a single person I know who doesn't use Snapchat while Facebook stories is literally always empty. I'd say Instagram stories is the real competitor. Even then, when I meet someone Snapchat is usually the first thing that gets exchanged.

I still find that at least a quarter of the stories my friends post on Instagram are just their Snapchat usernames

How can a company hope to grow if its narrative is "made specifically to appeal to Americans who were born after 1995"? The next wave of American kids will have something else they arbitrarily like better because it was "their thing". This has happened so many times it's not even worth debating. At the same time, Snap is totally irrelevant in places like Asia, where the big numbers for growth are.

These guys should not have gone public.
I apologize if I am wrong and they went public because they really had no other option, but my impression at this point is that they got impatient and wanted to cash out.
I say this because I think it's ridiculous how much money the founders took off the table when they IPOd, despite how bad they were doing objectively.
Now they're saying they won't sell their shares "for the rest of this year" (which is like 4 months away) as if that's some sort of noble thing to do, but if you already have hundreds of millions of dollars in your bank account that's nothing.
I am glad to be wrong, so if anyone knows more about this (that they had no other choice than to go public) please enlighten me.

> These guys should not have gone public.
> it's ridiculous how much money the founders took off the table when they IPOd
> please enlighten me.
What do you not understand? They didn't run the business for altruism's sake. They wanted money, and they got a ton of it. It's classic FYIGM.

I fail to see the downside in going public for Snap given their IPO set up. They got 3.4 billion dollars and gave up nothing for it really.

Sounds good to me, I would probably do the same thing.

I'm betting either Snap or Twitter will be acquired, once their price is low enough (maybe soon). They aren't just going to fizzle out as they both have substantial number of users. I don't own either, but my guess is that their stock will see a big bump similar to the outcome of LinkedIn's acquisition by Microsoft. This is just a war of attrition.

There's a gap going from "the next Facebook" to "a nice niche for 15-20 US demographics". There'll be more adjustments as the market answers the usual question: are they enough advertising dollars to fund a niche social network?
Meanwhile, FB really stands out as the "Microsoft of social networks" in this decade. They really manage to cut every new head as it pops up from the ground. FB now works as a system, while any other competitor looks like a feature.

On the bright side, hopefully the amount of millionaires minted by Snap will improve the angel investing scene in Venice Beach

I think at this point, unless your product is pretty niche, it's just going to get swallowed by the big guys.

Link to earnings webcast, going on right now:
http://services.choruscall.com/links/snap170810AfkYZvWT.html

Wow, whoever administrated the Q&A let an analyst on the line who wasn't expecting it--and was laughing out loud at Snap's executives' answers.
Looking forward to listening to that again once the audio file gets posted.

For the curious the question starts at around 54:00 with the laughing at 56:45

Thank f*ck snap wasn't allowed into the S&P 500...

Has anyone else noticed the stream of articles set out to undermine Snap over the past few months? Call me a conspiracy theorist if you want, but I don't think the sole reason for these articles is about their financial position.

If your core feature can be easily copied by your competitors, is that an advantage to start with?

Only if one of your competitor is Facebook. They have over 2b users

Well, FB is there for a long time, so the whole prospect of Snapchat relies on that Facebook shows mercy not to copy their feature? That sounds like a horrible business to begin with.

When FB, Google, Amazon, Microsoft are all worth several hundred billion how much room is left to not get copied?
Seems like the best you are hoping for is that you end up entrenched before they react (like twitch vs youtube).

That is the point, investors, and engineers alike should be wary of such companies whose foundation seat on sand.
And I don't really understand when Twitter has set a bad precedent for social media companies, why people still bet on Snapchat. Weird choice.

Well FB was once in the same spot.

But no one tried to rip them off like they are doing it now. Google took their own approach to social and failed.

Google never cared about winning social. They wanted people to get Google+ accounts and fill in more demographic data about themselves that could add value to their advertising offerings. Being that now you pretty much have to have such an account to use Google services, and people are likely to at least fill out some of the information - I'm betting they don't consider it a failure.

This article from 10 days ago claimed that most employees have a $15 strike price: https://www.theinformation.com/soon-free-to-sell-few-snap-em... (paywall).
Can anyone confirm that most late Snap employees unlikely to exercise options anytime soon?

I don't know where they can get their figures. $15 sounds a bit high for a median. The average tho is in the S-1: $2.33. Maybe the average is heavily skewed downwards by some very cheap penny options?

I have to believe it’s heavily skewed with older huge grants to higher ups

Most late employees got generous RSU's instead of options.

Only to employees hired post IPO though, correct?

No, they've been granting private RSUs for at least a year before.

Why would it be restricted to post-IPO employees? It's pretty common to get RSU grants at a startup pre- or post-IPO. Typically you can negotiate the mix.
Source: have received and negotiated on offers within the last three years from "name-brand" pre-IPO startups.

Large portions of these grants are likely to be in the form of RSUs rather than options. I find the whole "underwater" narrative less compelling for this reason (RSUs are never under water).

But presumably the employee had to pay a load of taxes on the RSU, no? I don't think SNAP is down so much yet, but you could end up with a very large loss, which is difficult to write off if you don't have other capital gains. Yes?

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