Snapchat's Evan Spiegel: ‘We Need to IPO’ | Hacker News Reader

Snapchat's Evan Spiegel: ‘We Need to IPO’

latimes.com

58 pointsjwegan49 comments

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Facebook at the time of IPO in 2012:

-= 526 million daily actives (1)

-= $1b net cash flow / yr

-= Last money in pre-ipo values it at $50b pre-money (2011) (4) when daily actives were 372 million

-= $90b market cap after 1st day

Snapchat today::

-= 100 million daily active users (2)

-= ?? net cash flow

-= Last money in values it at $15 billion pre (3)

- - - - -

I understand that's not a perfect proxy to measure value / traction as SnapChat is quick to point out - eg their users watch a lot more video than FB users =- etc

So the revenue-per-user metrics may sway.

But, at the same token, FB at IPO time didn't have as favorable of a growth market (they handn't figured out mobile yet, where today mobile = all of the things)

Will be interesting to see.

(1) http://www.zdnet.com/article/facebook-ipo-final-numbers/

(2) http://www.businessinsider.com/snapchat-daily-active-users-2...

(3) http://www.bloomberg.com/news/articles/2015-03-11/alibaba-sa...

(4) https://www.crunchbase.com/funding-round/37bd05f961af726ba3c...

(5) https://tctechcrunch2011.files.wordpress.com/2013/05/faceboo...

Great comment! The data shows a quickly growing social network and ad business (despite a lot of the naysaying in these comments).

From my personal observations, younger folks are spending a lot more time on Instagram and Snapchat, and a lot less time on FB and Twitter. And on Instagram, a lot of Snapchat content gets re-posted with their username in the comments.

Also, the amount of content I see created by people on Snapchat is way larger than what you see anywhere else. The expectation of curation is much lower so engagement is higher.

A few things about the product that I really like that illustrate Snapchat's transformation into a revenue generating business:

- The new "Live" stories from different places around the world are amazing and one of the most intimate forms of cultural exchange outside of physically visiting a place that I've experienced. Advertising has started in these streams already.

- The attempt with Discover to replace conventional TV programming with a mobile-first format is bold and has the potential to grow as younger folks find themselves consuming more media on their phones and as Snapchat builds out better relationships with content creators in the LA area.

- Snapcash is a smart first attempt at getting people's payment information so that peer-to-peer but eventually brand driven commerce can happen on the platform.

My devil's advocate to the points you called out is that just because advertising exists doesn't mean it works. I haven't seen any numbers from their usage yet, but I do know their young demo is aggressively averse to advertising. That being said, aside from the revenue topic, I think integrating news into short-form bites like this is a solid approach to serving today's younger peeps mass media info.

Indeed, Snapchat seems to be doing well. Facebook, not so much:

http://www.google.com/trends/explore#q=facebook

Snapchat and Instagram was born on mobile whereas Facebook have been scrambling to adjust their offering to a different form factor than it was created for. With all of the technical debt Facebook seems to be saddled with no wonder they're not doing so good.

You put an awful lot of faith in a graph with no numbers...

Move our cursor over the graph. The numbers pop up when hovers over the line.

That being said, this graph is a weak indicator. Facebook is doing well in the ad space.

> Spiegel also said he believes there is a tech bubble that will eventually burst.

My cynical reading of this is that Snapchat wants to grab as much of retail investors' money before consumer tech valuations implode.

Link to the actual video interview where he basically says exactly that: http://recode.net/2015/05/26/snapchat-ceo-the-tech-bubble-is...

If he actually thinks there's value in his company, the tech bubble bursting would only help him as salaries should be pushed downward.

With the kind of capital Snapchat can raise today, cost savings on salaries is a trivial part of their competitive advantage.

1,000 people * $100,000 average total employment cost = $100m per year (intentionally rough math). Now shave 20% off of that. It simply isn't meaningful to what they're doing; they raised $685 million in the last six months, saving $20 or $30 million per year doesn't matter.

For Snapchat, for which money is no issue relatively speaking, it's better to have this super rich funding environment. They can out-raise, and out-spend their competition when it comes to talent (and for those they can't do that to, like Google, it's moot anyway).

Interesting to see Google included in this comment, since they are currently the only company profiting off of the snapchat user base. Snapchat is built on the google cloud, presumably one of its biggest clients, Google gets a piece of every bit of funding that goes to snapchat. More users -> more growth -> higher cloud costs. Profitable or not, snapchat pays google.

That would be true if there was a salary bubble. There isn't. On the contrary, salaries for engineers are still low relative to the scarcity, and tech startups are only a small portion of the IT job market. And most startup jobs are actually underpaid compared to "boring" IT.

There may be a bit of an impact in SV, but not much beyond. Same as last time.

> And most startup jobs are actually underpaid compared to "boring" IT.

Most tech workers don't realize this. I can work an exciting, below market startup job (infrastructure/devops), and then hop back into enterprise IT (it manager/vp engineering/senior linux admin) when the going gets tough and get paid more (ie market rate) until the next startup wave comes through.

Snapchat reportedly has minimal revenue, and is already discovering that advertisers aren't going to pony up $100 CPMs[1].

When Facebook went public, it was already generating more than a billion dollars in revenue a quarter. When Twitter went public, it was generating well over $100 million a quarter.

There is no doubt that Snapchat is an important platform and can generate revenue - perhaps significant amounts of it - but it has a long way to go before it can justify a public market valuation anywhere near its current private market valuation.

For comparison, Twitter is currently worth about $23 billion and generated more than $400 million in revenue last quarter.

Snapchat, in its current state, might be an interesting public market investment at a few billion. Above that, there are much better risk-reward opportunities.

[1] http://recode.net/2015/05/08/snapchat-lowered-its-ad-rates-f...

But snapchat has huge unlocked revenue potential. they can 'flip' a switch and instantly monetize those millions of users by launching an advertising platform similar to the one Google and Facebook has. Facebook deliberately waited years before generating meaningful revenue, so did Google.

You're confusing the subject of potential with the subject of valuation. If Snapchat goes public at a valuation anywhere near its current private market valuation, the revenue potential will be more than built in to the valuation, with minimal discount for risk I might add.

As a public equities investor, this is entirely unappealing unless you believe that Snapchat could deliver a multiple far in excess of comps like Facebook and Twitter and at a time when valuations are already so rich.

At this point in the cycle, I do not believe it would be wise to be chasing an issue that has retail investor appeal but minimal revenue. If you're bullish on social, you could do a lot worse than to invest in the company that has the best working model.

that's why it has the valuation it has. the valuation is pricing in the potential . People thought Google and Facebook would not deliver, but they did. Maybe snapchat will, but maybe not. I think they will.

One could attribute Spiegel's "tech bubble" to the very ecosystem Snapchat is a part of. Consider the current cycle of money:

- Venture capital goes into StartupX

- StartupX two biggest costs: Infrastructure, Advertising (to varying degrees)

- Infrastructure money goes to BigCorpY hosting platform

- Advertising money goes to BigCorpY advertising platform

- BigCorpY acquires StartupX

- Money and BigCorpY stock goes into pockets of StartupX stakeholders

In this case, Snapchat spends all its infrastructure dollars on google cloud platform. Even when though Snapchat is not profitable, it still gives millions of dollars per month to Google.

(Snapchat, as far as I know, has not spent much on advertising, but some startups do not have that luxury.)

How fragile is an ecosystem built around ad dollars funded entirely by venture capital? What happens when Facebook misses earnings due to declining ad spend? Do venture capitalists reduce investment due to lowered expectations of highest possible reward?

Is this a house of cards?

Am I the only one here who is impressed with Evan Spiegel + optimistic for Snapchat?

Everyone keeps citing the fact that the company is pre-revenue and pre-profits, but FB was too for a while. Snapchat can easily turn on the revenue and profit hose if they so choose to.

1.5 ads a day x $20 CPM x 100m DAU x 365 days/year = 1.095B in revenue a year from advertising alone! With Snapchat's explosive growth, we can assume it will eventually hit 200m DAU. That means 2.2b in annual revenue, just from advertising! Add in monetizing things like the discover feature, Snapchat, to even things like local event promotion, and that company can hit in 2.5b

The kicker here is that Snapchat can be instantly profitable. 1000 employees will cost at max 100M, and infrastructure costs will only cost a few hundred million. On 2B in revenue, that's insanely profitable.

The big question mark is if ads reduce user growth and engagement metrics. However, it seems like Snapchat is a platform uniquely similar to TV, hence I personally don't care when I see a high quality ad or two. Moreover, they are putting a lot of attention to this issue, which is awesome.

Just for a comparison, Twitter made 1.4b in annual revenue and has never posted a profit, and is worth 24 billion. If Snapchat makes 2.2b in annual revenue, and got the same P/S ratio, it would be worth 36bn. Not bad to get in at a 15bn valuation if you ask me.

I wrote this here a few weeks ago:

Mind you, I've never used it, but Snapchat has 100 Million monthly uniques.

I can't think of a single company who has reached a critical-mass consumer audience and not been able to monetize. Sure, winds change, MySpaces rise and fall, but it wasn't a monetization failure.

Anecdotally, just a month ago I was walking and because i live in San Francisco I happened across a corner (Howard and New Montgomery) where there were ~20 girls about 13 years old being polled about their tastes, and the questions I heard waiting for my light was "Do you guys like smartphones?" ("yes", duh), "Is your phone more important than your TV?" ("yes", duh), and "What is your favorite app?" and the answer was unanimously Snapchat.

Snapchat is the teenagers answer to the question many millennials have fretted about -- "how will ppl born today deal with having all 18 years of their development online". The answer is: they don't put it online. It's peer-to-peer and temporary by social contract, even if the technology is imperfect.

So far, snapchat has played a savvy game. As an engineer, if they were based in SF, I'd consider working for them. They have tapped into something. Because my 28 year old wife has also been hooked on Snapchat for what seems like a lifetime now. Her most frequent contacts? Both of her 60+ year old parents, numerous cousins and aunts, etc. Her dad uses it to send stupid pictures that you might not expect from a 65 year old white haired CEO-type whose work is about as far away from tech as you can get.

>> I can't think of a single company who has reached a critical-mass consumer audience and not been able to monetize.

Twitter, just about every news site, Pinterest, WhatsApp, Digg, ...

digg never got big enough. Pinterest, Whatsapp are intentionally delaying revenue generation to build the userbase, a common strategy and not at all proof that they cannot monetize.

If they believe that whatever monetization method they're planning is going to stop their userbase growth, they might just as well give up. There's a lot of competition and the users can switch in an instant to something else. LINE had monetization in mind from the beginning and is still growing. Meanwhile Whatsapp is continuing to be a money sink for FB.

Well, there's "monetize" and there's "make a profit".

There are plenty of critical-mass consumer audience companies that failed to make a profit, some are alive only by leeching off parents, some died.

I mean, are the following companies successes or failures?

Reddit, Digg, Foursquare, ICQ, Instagram, Youtube, MySpace, Tumblr, Napster, Chatroulette

And they're the ones I can think of off the top of my head.

One could argue that Snapchat is the epitome of a fad product that should sell to a Yahoo to 'monetize'.

"We need to cash out before investors realize we have little value."

But they will realize if they have value or not when they read the S1 filing required to IPO.

It won't matter in the present environment. They'll sell the story, the user growth, the demographics, the revenue potential. It's the same premise supporting Twitter's incredible valuation, which is entirely contrary to its actual business fundamentals.

It'll matter later, when the correction Spiegel is predicting finally arrives.

That's when Snapchat goes from being worth $18 billion in the public market, to being worth $4 billion. This story repeats over, and over, and over, and over again; and every time, half of people are off by years in predicting an imminent correction, and the other half don't think a correction will ever come (or that we're just at the beginning etc).

Do you think every investor is going to read that before considering buying? That's a serious question, as I don't see any reason to have such a great amount of faith considering the previous tech bubble.

No that won't matter, imho, because it's not a value-based investment. It's a growth investment and the only question that needs to be answered is - will the stock go up? An S-1 on a company that has no profits and very few hard assets will tell you very little. But that won't stop investment, because that's not what they're looking for.

Well I would argue if they're positioning it as a growth based investment, that's a huge red flag to you, the potential investor. But of course, some people will believe in their story.

It would only be a red flag if I was a value-based investor. Warren Buffet won't be there in other words. But if revenue, profit, earnings, and assets were the only metrics used for investment the stock market would be tiny compared to where it is today.

They were offered three billion dollars that they turned down. That is the best offer they will ever receive, and they fucked it up.

They fucked up big time.

The value of a company pre-IPO is what someone (or relatively few people) is willing to pay to acquire you. The value of a company post-IPO is essentially how much your shares are selling for. The prices of your shares are largely dictated by the opinion of a much larger number of people.

Come on. Even if snapchat rapidly declines I am guessing Spiegel is going to end up doing alright. Why not go for it like Zuckerberg did instead of selling?

Can't succeed if you don't try. Good for the founders for deciding to run with it.

Oh surely he will be fine. You would be a fool if you did as well as they did now, and ended up in really dire straights on a personal level.

Having said that, I agree. It was likely a huge mistake to turn that down. FB has whats app, and there is now so much competition in this space its uncanny. From iMessages, to FB Messenger, to Whats App, and smaller players like Kik, it seems like a congested market.

You can do both--sell your revenue-less startup for billions and then start a real business with a portion of your fortune.

They fucked up big time.

That's what people said about Facebook in 2006 when they turned down the Yahoo offer. I predict Snapchat is going to be a dominant player in mobile advertising, like Facebook and Google. I wish I could invest in it now, even at this high valuation. Also extremely bullish on Tinder and Pinterest.

You can own/invest in Tinder (ish - I say ish because you'd have to invest in a bigger company). It's owned by Match.com, which is owned by IAC ($IACI).

> They were offered three billion dollars that they turned down.

That's called balls.

If something like this happens, it's definitely a sign that a bubble will burst. It's worrying that normal start buying shares from a unicorn with 0 cash flow.

It seems like it's hn's general consensus that snapchat isn't worth that much(or anything), so why would anyone invest in it when it IPO's?

For the same reason people bought over-priced homes a few years ago: greater fool theory.

Because maybe we aren't as smart as we think we are.

Feel free to apply that statement to either the investors or the HN peanut gallery.

> It seems like it's hn's general consensus that snapchat isn't worth that much(or anything), so why would anyone invest in it when it IPO's?

The opportunity for IPOs is to get investment from the wider public. While HN may have skepticism for the profitability of snapchat, people in the wider public may have looser wallets....

Any reason to assume it would only spread the (debatable) existence of a bubble?

Since this makes absolutely no business sense, you can bet it's being done to cash out investors and shareholders, before the clock runs out on the party.

They can raise all the private funding they need, but they can't cash out that way.

Actually the fonders have been cashing out I'm pretty sure. Employees get antsy if there's no way to cash out. Not to mention venture investors, for whom this is (assuming the price stays up and they sell before the stock can start nosing its way down) a huge payday they can bank and look good to their LPs, so they can raise the next fund.

... because we aren't actually making any money.

Let me complete the sentence in the title "... before this cycle of the tech bubble bursts"

This guy sounds like an asshole :S

"because it's more fun that way"

That's it? that's the reason to stay independent? fun?

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