Snap Inc. Third Quarter 2017 Results
investor.snap.com
investor.snap.com
Looks like spectacles was a failure.
Are you speculating or have you seen this clearly? Personally, any way you frame it, it comes down to a lack of focus; failing to act before the lens of public opinion shifted.
frame
focus
lens
Did I miss any?
What I find most interesting about this is directly from the first line of the company description in their S1:
"Snap is a camera company"[0]
Yet the one instance where they actually own and sell a camera (i.e. Spectacles) instead of leverage someone else's (i.e. smartphone) it's a massive failure.
[0] - https://www.sec.gov/Archives/edgar/data/1564408/000119312517...
Those are staggering figures to me and the trend is equally surprising. Maybe it's ignorance about hosting costs at such a scale, but i feel like cost/DAU should be declining over time, right? Is there something i'm missing here?
I am thinking of writing an e-book about it.
They use Google, right? When was the last time Google (or any of the cloud providers) lowered their bandwidth charges?
That small fluctuation is probably just minor variations in usage.
Also don't expect snap to be paying list rate.
https://cloudplatform.googleblog.com/2017/08/introducing-Net...
(Disclaimer I work for Google cloud. I also have no direct knowledge of snaps gcp rate but have worked on other offline contracts)
Regardless, my understanding is that Snap now gets some sort of flat rate deal from Google, so not sure how important the individual components are.
Ahem, I mean it could be.
https://www.recode.net/2017/3/1/14661126/snap-snapchat-ipo-s...
Seems like at that point it might be cheaper to run your own datacenters?
Depends on whether they acquire new users in the future. Their hosting costs are fixed, so doubling their user count would halve their per-user costs.
You need a culture of cleaning up tech debt to reduce resource usage.
With so many holes in the ship, the company is going to be focused on features to drive up RPU.
Daily active users (DAU)(1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
That's good growth year-to-year, but not spectacular. Still, they aren't being completely killed by FB/Insta/WhatsApp
Average revenue per user (ARPU)(2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
That's really, really good news for them.
Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
That's surprising and should be somewhat disappointing. It makes me curious as to the reasons - I wonder if it was international growth where they didn't have good hosting deals or something?
if DAUs increased, perhaps the average user also used snapchat more often, which would increase costs. this is pure speculation, of course, so please share if you discover the cause.
either way, hosting costs per DAU is an incomplete metric -- something like cost per minute (i.e., minutes in app or otherwise interacting with snap) would be a helpful supplement.
Add in their enterprise value to revenue ratio and its a very sad story.
Yes this is very true.
They have to find a new growth channel somehow. It's good news that their user base isn't being eroded by competition, but they need to try something different to grow.
1. Underestimating the competition.
Evan Spiegel clearly believed that Zuckerberg would never figure out how to beat him. He seems to have concluded that he was smarter, more creative, and more agile than Zuck. He profoundly miscalculated Zuck's relentlessness and is now losing badly as a result.
Takeaway Lesson: Hubris kills.
2. Attacking a market where you have few/zero major advantages.
Evan seems to have concluded that the only scaleable way to monetize a social app is with digital advertising.
The problem?
With <10% of Facebook/Instagram's user base, a tiny fraction of Facebook's ad targeting data, and a set of ad products that were 4-5 years behind Facebooks, why would any advertiser ever dedicate more than their 1-5% "experimental" budget to Snapchat?
Answer: They wouldn't, and likely never will.
Takeaway lesson: Don't take a juggernaut head on. You will get crushed every time.
3. Misunderstanding your own advantages.
Snapchat originally took off because it offered an underserved segment of the market (young people) something Facebook and Instagram did not: a relatively safe, low-judgment place to express themselves.
By focusing on the advertising market (and inevitably turning to privacy-destroying data aggregators like Experian to buy ad targeting data on its users), Evan threw that away.
Takeaway lesson: Never lose sight of the needs and desires that led your users to choose you.
More here: https://exponents.co/snap-facebook-key-competitive-strategy/
Let's not pretend it's possible to compete with Facebook on a level playing field.
It's more than just recreating the best feature.
The Snapchat Android app is completely garbage. :|
In a very short amount of time Facebook where able to clone one of Snapchat's signature features AND gain large numbers of new users in the process (as of March 2017 they reported Instagram stories having 200 million users per day, overtaking Snapchat in the process).
It's the market dominance that really did it. Instagram already had the attention, brand, and network.
You just can't beat them at being Facebook.
> But it did not work with Snapchat and Evan Spiegel, who seems to have turned down Facebook’s $3,000,000,000 without hesitation or second thought.
I think it did work out pretty well for Evan Spiegel and Snap Inc., since they're trading at around $18B on the stock market despite lots of concerns around their business...
Nearly every aspect of my social life is planned on Facebook. It's the one place where nearly everyone I know are. Facebook, for me, is really just the best event planning tool in existence.
I'd also instantly lose contact with a bunch of acquaintances and friends. I've moved around quite a bit in my life and Facebook connects me with those people. When I travel it's the platform I use to reach out to the people I want to catch-up with. It'd be a real bummer to lose that.
It's true that the news feed aspect of Facebook is something I wouldn't miss. It's something I never use anymore, politics has taken care of that. But all of the features around it ARE things I deeply care about.
If you cut me off tomorrow of Facebook and Messeneger I would instantly loose contact to the majority of people I care about (except my wife and parents).
I would end up spending life on my couch watching Netflix instead of engaging in a rich social life I have now thanks to FB events, groups, Messeneger, etc.
And I guarantee you that’s true for a large amount of the user base! Otherwise they wouldn’t retain.
(Fake) news and cat videos are a very hyped topic...but it’s really only a small part of why people actually use FB
Culture has always changed with time.
Far from many of my friends and family? Many of them live in other states or countries, and Facebook is cheaper and usefully async when dealing with international calling rates and timezone differences, respectively. I'm not sure I understand your question.
And my partner being friends with my mum on there has actually helped both out with subsequent interactions as they know more about their common ground.
Facebook, ultimately, is what you make it. There's loads of "racist uncles", "fake news", "Tasty videos" etc, but if you engage with the people, it's as powerful as ever.
My social life is on WhatsApp groups. No one in my social circle uses Facebook Messenger for anything relevant. The number of friends' photos has steadily gone down over the years. I've switched off FB but come back when am bored and want to spend time looking at cat photos and BuzzFeed. Facebook not existing in the world would impact me minimally.
Google, and even Microsoft, on the other hand, damn if they stopped existing... I'd be fairly distressed I suppose.
The Facebook website itself is no longer particularly useful to me, other than that it is very good at events (both private and for public event discovery). The groups feature is also handy.
This wouldn't work with the Facebook Messenger, since this social graph is not stored by the user.
It is worth $16b even after the affect of this earnings report.
Facebook might have slowed their growth but they did make a huge company before they were slowed down.
As it stands now they are basically pulling a Twitter.
https://www.google.com/maps/search/venice+snap+locations/@33...
http://www.laweekly.com/news/snapchat-leases-more-than-20-pr...
Does FB wait for the price to fall and take them out for $10B? Or grind them to dust to make an example of any startup foolhardy enough to forgo an acquisition offer?
WhatsApp had large marketshare and growth outside of FBs core markets.
Anyone with holdings in Snap who aren't named Evan Spiegel or Bobby Murphy have only one option: sell the stock and recoup whatever they can. That's what people are doing. Snap's share price will not substantially recover, and there won't be a return from an acquisition until the business completely runs out of money.
I'm in my 30's and don't know too many people that use SnapChat... so when people say "young kids use SnapChat" I'm not sure if that means 13-18 year olds or 18-29 year olds or something.
I'm 28 and only a few of my friends are heavy users but most people younger than me have accounts. I've met several girls who are weirded out that I don't have a snap.
It's brands with credit cards and "kids" with eyeballs. It's a promotions/advertising play.
That's basically SNAP's audience. Young kids who you cannot monetize, and obviously cannot build billion dollar companies on.
Maybe once they grow up they will be valuable, but (a) can SNAP wait that long and (b) will those users stick to SNAP once they've grown up?
https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-...
While it is certainly anecdotal, it also fits both the data (the declining growth and difficulties monetizing) and the general perception (that Instagram stories obviated Snapchat). But then again, if my son were a kingmaker, Funky Karts would be a unicorn -- so take this for what it is!
Has a fairly bleak write up. It makes the point that if enriching the founders is the aim they are doing pretty well.
> "Even if only 1% of people buy them we'll still profit!"
"The number smaller than 1 is 0, and we're obviously going to sell more than 0" ;)
https://finance.google.com/finance?q=NYSE%3ASNAP&ei=bSsCWpmn...
What did going public allow the company to do that it was unable to do prior to selling out? Did they just need the money to keep paying for bandwidth? Because that's the essence of the 1990s dot com game, with private venture capital being replaced by wall street investment firms.
Unreasonable demands for 'projected growth' is what always kills companies who otherwise, would be maintaining just fine.
The only reason is that the "endless investment" dried up.
present: Application
Camera company?
"Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering."
I believe the vast majority of that was due to issuing stock to Evan Spiegel for successfully executing the IPO at given metrics.
Net loss for the nine months ended September 30, 2017 includes $2.5 billion of stock-based compensation expense, primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our initial public offering.
The idea that money given to employees as equity is not "real money" is toxic.
Stock-based compensation isn't the same as cash. It has both costs and benefits, but saying it is "toxic" seems overreach.
I believe user addicted was trying to say is that companies are attempting to treat a large portion of compensation paid out to employees as somehow not material or meaningful, and that practice is toxic.
They are obviously not the same thing (as the comment about trying to pay rent, for example, tries to point out). But at the same time, a lot of companies try to pass them off as not meaningful which I don't think is helpful even if toxic may be too strong a term. (SNAP's figures do that literally, giving us NM for change % numbees affected by the stock compensation).
Equity is not money, and employee-owned equity often isn't easy to convert to money, especially in non-public firms (but even in public firms, employees are often bound by insider-trading rules.)
Of course, costs associated with equity-based compensation are real costs to the firm, independent of the fact that equity is not money.
As I understand it an Accumulated Deficit is the opposite of retained earning so a loss. But losses are positive values in liability accounts so we should invert it again and get back to an Accumulated Deficit. But instead of SnapChat adding this amount to their liabilities they're using it to reduce their it to reduce their equity.
OR
Do you foresee them surviving beyond 2027?
Compared to instagram's stories, which loads up in an instant, Snapchat takes its own sweet time. They made the mistake of not paying enough attention to android in the beginning. And now they are trying to fix their mistake. It is a timesink; but they brought it upon themselves.
Instead of fixing each individual problem, they appear to have declared bankruptcy and are throwing out their old code.
- For every $6 they spent, they got back $1 in revenue.
- The product is an app which is free to use.
- A large chunk of their system runs on Google App Engine; which is probably the most expensive and highest lock-in infrastructure solution that you could possibly use.
- The CEO, who was basically fresh out of university, turned down a $4 Billion offer buy the company.
So basically; they're a company which loses money at an incredible rate on a product which is nearly impossible to monetise and with an inexperienced and irrational person as a CEO. I'm surprised it still exists tbh.
No sane rational person can look at those numbers and think that it's a good investment.
Not really. Like any hosting platform, if you know how to tune it properly costs can be kept low. We cut our infra costs in half moving to GAE. YMMV.
Dropbox did the math and found they could do better on their own. Only time will tell who is right.
It's definitely cheaper on the lower to even medium end. But once you're spending six figures per month, it's probably only ~10% cheaper than buying the equipment and hiring three people to manage it. Not sure why anyone would be on Google Cloud (or any cloud really) and spend 7 figures a month, unless you got a sweet deal from them.
You can already run GAE in a Docker container using app engine flexible.
Daily active users 178M (est: 180.5M)
Their active users growth is very slow.
166 (Q1) -> 173 (Q2) -> 178 (Q3)
It seems that already slow growth is slowing down even more. They started the year with 5% quarterly growth, then went down to 4% and now barely 3%.