It is true that all these high-growth companies go through major adversity on their way to the top, but this is where most end up failing. Just like every other high-growth company, Snap's valuation is predicated on atypical future results.
Even without adversity they have a tough road ahead. I would posit that there's a good chance the executive team & investors saw the writing on the wall and took the company public to get out before it totally collapsed.
It was a pretty strong signal that Evan & Bobby are primarily money-driven when they took $10M each off the table during the B round. Other notable companies where founders have done this sort of thing have resulted in fast spike-and-collapse results: Foursquare, Zynga, and Groupon.
Zuck didn't take an early multi-million dollar cash-out. The Instagram founders didn't either -- they were living in 1-bedroom apartments a year after the acquisition. Founders who believe in the long-term success of a company don't tend to get rich off a company that has not yet attained either their vision or produce significant wealth for itself. Obviously causation != correlation, but this is a pretty strong signal about the motivations of the founding team.
It's certainly their prerogative to cash out early. I'm not making a moral judgement here. However, as a value investor this is a useful signal for high-growth tech companies. This all sounds incredibly cliche, but I just don't see signals that lead me to believe Evan & Bobby have motivations in the same category as Bezos or Zuck or Jobs. All the signals are that they appear to be looking to get rich to live a life of luxury, not build their life around their company. As a human, I personally would prefer the former. As an investor and employee, I want to put my money and time into companies lead by the later.
[Disclosure: Former Instagram & Facebook employee. I don't currently own any Facebook shares]
- Apple was a company that sold computers. SJ being kicked was an relevant event for the company, but it still sold computers and was worth something.
- Amazon was an intermediary between sellers and buyers. Today is a company that invested a lot in other things and is worth something.
- Facebook could be monetizing something, but it's still just a webpage. Remains to be seen if it's worth something, so their shares are crap (this is from a fundamental point of view, regardless of whether they keep rising)
- Nike sells shoes. It's worth something, though it's not a fundamental company for the market.
SNAP, on the other hand, has some face recognition algorithms, and created a free app. That's it. It produces nothing. It's a worthless company when it comes down to the assets it has and the product it sells.
Selling something vs nothing is a good metric to think about, but "advertising" is certainly not nothing. In fact, it's a multi-billion $ industry. It just so happens to be dominated by Google and FB currently, who are both "fundamentally" selling something real.
I think one could've argued at the time that Apple wasn't worth something because they were the struggling vertically integrated supplier of consumer based computers in a sea of horizontally integrated providers. It wasn't until they got more of a foothold everybody started seeing the benefits of software made to run on a single type of device.
Intermediaries have increasingly become devalued over time as digitization has meant there's less and less of a need for middle-men. Hence why Amazon's surge has come on the heels of providing Entertainment and Cloud services, something intermediaries in their space never did before.
Facebook yeah I suppose, the fact that they have margins almost no other company could dream of kind of rationalizes it to a strong degree though. All in all, I see where you're coming from.
Nike yes I see where you're coming from.
Disclaimer me posting that comment wasn't suppose to be a riot act that Snap's going to be the next $400+ billion dollar company, I'm as skeptical as most about the future prospects. However, I'd argue against saying they produce nothing. The fact that they are anti to the leading social media provider (of sorts) gives them a production point. As demonstrated in their reports, their user's incessant check in's on the app despite any Facebook-esque notification stream to keep them coming back is pretty envious (in my opinion).
Whoever that "someone" is, probably isn't as experienced in the markets as you think.
The concepts don't translate, that's for sure. However, to claim that Facebook is worth something if they just keep collecting data and we see nothing being done with that, is just wishful thinking.
Amazon invests in research and built a PaaS/SaaS service that's worth a lot. It innovates on several products like Kindle and Echo. Owns patents that are worth something.
What's the ACTUAL commercial value that Facebook is bringing to the world and to people that's making it so worthwhile? Sharing pics? Getting customized newsfeeds? Having yet another channel to communicate with your aunt or with that customer service? What do we lose if Facebook goes away tomorrow?
It's the model that has worked for TV, Radio, and Newspapers but in the new world the integration points are different from those old models making the chain of value much different.
Here's a short article that'll help explain it better than I can: https://stratechery.com/2015/aggregation-theory/
By your friend's logic, AirBnB doesn't have any value either.
Yes AirBnB is a glorified hotel reservation site, but isn't a car just a glorified horse and buggy? I guess I just don't understand how you could be so dismissive in the face of something so clearly valuable and so clearly wanted by the market.
this isn't me saying "Now's the time everybody! Pour your entire retirement fund into SNAP before it's too late!" it's an admonishment for the short-sellers sucking in the inevitable negative media headlines around any hot IPO as fact.
The last time Amazon was worth less than $20 billion was back in March of 2007 [1]. The month prior, they announced results for FYE 2016 [2]. That year, Amazon had net sales of $10.7 billion on which they made a profit of $190 million (page 47). Amazon's operations, meanwhile, produced over $700 million of cash from operations (page 46).
Snap shows $150 million of Q1 2017 revenues. They managed to turn that into a $2.2 billion loss [3]. Next to that, the $150 million of cash their operations lost looks like chump change. (Snap incurred a $2 billion one-time non-cash expense in Q1, so the revenue and cash-from-operations numbers are better for comparison purposes.)
Keep in mind, too, that $1 in March 2007 bought as much as $1.19 bought in March earlier this year [4].
[1] http://www.macrotrends.net/stocks/charts/AMZN/market-cap/ama...
[2] https://www.sec.gov/Archives/edgar/data/1018724/000119312507...
[3] https://www.google.com/finance?q=NYSE%3ASNAP&fstype=ii&ei=f_...
To be fair, a big chunk of that loss was due to many years worth of equity-based compensation (stock options) all booked at once.
Snapchat's total revenue for 2016 was $405M, with net loss of $514M.
The two are not even remotely comparable in terms of financial soundness.
How often is it that the now-huge tech (or any industry) firms DON'T go through trying times when they first appeared on the markets?
-Apple kicked Steve Jobs out of the company convinced the monolithic giant IBM was going to cut them out of the equation.
-Amazon almost went bankrupt when the market crashed
-Facebook dropped for almost a year when it wasn't obvious how they were going to monetize their mobile platform profitably
-Nike got hit with a customs battle brought on by Converse for millions
Obviously it remains to be seen whether they will show the resilience the aforementioned companies did but the fact that some are already speaking of Snap in the past tense is kind of crazy, they've had ONE quarterly report come out since the IPO.