Snapchat Discloses $650M Private Placement
wsj.com
wsj.com
Few months back I got jealous and installed Snapschat myself. It conveniently scanned my contacts, and found that none of my friends are on it. (I’m late 30s.) To this day, the only snap I received is the default welcome message they send to everyone.
They’re doing a good job of confining their appeal to their target age group. The minute I and my peers appear on Snapchat, it's time to get worried.
And then there's snapchat.com, which is another enigma. I consider myself a reasonably competent technologist but Snapchat makes me feel like an ape trying to figure out a mysterious monolith.
I think a lot of people are skeptical because the concept seems really dumb. But I've just kind of accepted that social networks get popular for very subtle reasons, some of which are non-technical.
Building a social network seems to be more of an art than a science.
The terms attached to this probably make their chance of selling out to Facebook for ~$20bn slim too.
Snapchat is a messaging app which distinguishes itself from the other messaging apps users also have installed on their phones by the fact it doesn't preserve any past interactions. Much like when I stopped bothering to log into MSN Messenger because people sent me messages in other ways, it dies in the eyes of its users once the daily updates stop, or even more quickly if the daily updates become near-exclusively advertising of the unwanted kind
Yep. But at the same time, there's no reason to think that these teens might also adopt a new app just as quickly if it were to come along.
I wonder if there's a new model, kind of like large privately held companies such as Mars or Cargill, but with multiple investors. Granted, many of the tech companies getting these valuations have unclear economics, but what if they had real revenues, profits and paid a dividend?
Honest question, why go public at all these days?
1 - After a certain point in time (based on # of shareholders) it becomes more onerous to be private, and you wind up with all the reporting responsibilities of being public.
2 - It's easier for a public company to engage on both sides of M&A. There's less quibbling about theoretical valuations since the company has a price. (When one private firm buys another with stock, there's 2 theoretical prices that need to be negotiated)
3 - For enterprise deals (not Snapchat) some customers prefer the stability of public ownership.
That said I wonder if 1 will always be that big an issue. What if you structure it so that you have a small number of large shareholders that represent larger groups? For example, in the case of stock options, a sort of labor union owns the stock, sits on the board and is responsible for distributing dividends to employees following a schedule of percentages.
2 is clearly troublesome, but perhaps more in the M than the A. If you acquire small companies, you may be able to do it in cash or again as some sort of contract entitling people to percentages of dividends. After all, that's kind of what a stock certificate used to be in practice, not just theory (yes oversimplification, but it seems people care far more about stock price than dividend these days).
I wonder whether these issues will always be as troublesome. As these kinds of mega deals become more common, it seems quite possible that a sort of parallel private market could emerge. Anyway, thanks for the reasoning!
On #1 - the issue is individual employees each have shares tied to their hire date. It's possible that someone could do some kind of financial engineering to make it look like 1, but this hasn't been done yet. This is the issue that forced Facebook to go public.
On #2 - If it's a cash purchase, the problem is less an issue. It gets tricky when the acquirer is significantly away from a funding event. The values of many high tech firms can be +500% or -80% just 6 months after a prior event. This has a massive impact on share-based acquisitions. Less of an issue with more mature companies.
All this said, it's fairly easy to see a world 20 years from now where there are much fewer public firms.
It's going to be interesting to see how long this private valuation explosion will last and what the fallout will be after it pops.
Overall, I suspect a shadow market would be a bad thing, but it's hard to argue that for the moment there isn't something like a shadow market in silicon valley. I don't think it's a sustainable one, and it certainly is opaque (what's in those term sheets?), I'm just thinking of whether something similar could exist in a more permanent form.
I thought they had to go public not because of how many employee shareholders they had, but because of how many employees had sold shares on secondary markets.
Maybe I'm being cynical, but given the exuberance of public tech stocks, and the bubbliness of the tech market in general, some may be impatient to cash out.
Also see: "greater fool theory"
But these companies' valuation is based on the idea that they have a huge market, and MAYBE they'll make money someday. Generally I believe that when these social network companies go public, their price-to-earnings is insanely high, meaning that in order for investors to receive value, they'd have to either hold the stock for a very long time, or be confident that the revenue will ramp up quickly enough to start making money very soon.
Ultimately, a VC has taken the risk that the company can be sold to "someone else", whether acquisition or IPO. That's when they see the company as having it's maximum value to them. They're not in the business of creating a sustainable business, they're in the business of taking something small and making it big. Once they get a valuation that they feel can maximize their investment (either IPO or acquisition), they're happy to lock in their money and move on.
Take Zynga or King for example. They were revenue machines when they were close to IPO. But investors knew the money-train was coming to a close, so they sold out and locked in their massive gains. The companies were very lucrative for a short period of time, so that drove up their IPO price. But VCs needed to get out before the popular games took a dive, which they inevitably did, and the investors got out at excellent valuations. If they had kept the company private, they wouldn't have had nearly the return they had.
There's not a lot of incentive for the company outside of the pressure the board puts on.
1) More capital/money. 2) Pressure from existing investors who want to cash out.
I believe they are in unchartered territory thus comparing it to anything else is just a shot in the dark. If you could wave a magic wand and ask for the best way to share moments of your life you would probably get a hologram of your friends to show them that instant of you life that you wanted to share. Snapchat gets closest to this. Moments come and go, not all moments should be forever saved, moments should be only for those you intend to share with, moments should be feel lively (video/images) not text, etc.
Also: Discovery feature - I give Snapchat so much credit for this. They got the younger demographic watching 'TV' again. Snapchat accommodated the channel these kids are using (mobile) to connect with the big media outlets in a way that they actually consume content. That is, by short clips of < 5-10 minutes.
http://www.bloomberg.com/news/articles/2015-05-29/snapchat-s...
Any bets on what market cap this will get to at IPO time?
Besides Alibaba I have never hear of any of these funds.
Edit: So they took a service that was as simple and flexible as could be, put arbitrary restrictions on it, and wrapped it in pretty UI. Kids are dumb man. (I'm 26)
In a world where everything you do is recorded and stored long term the promise of something fleeting is a beautiful promise.
MMS doesn't even come close to that experience.
1) With my girlfriend we just say hi and see a little bit of each other's daily work lives in each picture
2) With my buddies on inside, fleeting jokes that require the context of a picture and some art work
Snap Stories are also very common. I don't want to tell someone explicitly what I am doing, but it is still fun to share slices of life, so I will record a few seconds of an event and post it to my snap story. If someone wants to know they can. Usually about 30 people watch each of my stories.
Packing roughly 60 bytes into 8 megapixels makes me cringe, although thankfully at least the backdrops are usually high compressible.
Is this practice common, or do I just find myself around the wrong sort of bandwidth-sociopaths?
Or you could just skip the article when you see it. I don't see why we'd ban wsj.com just because you have trouble reading it.
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&c...
Please don't make comments needlessly personal.