The latest social media phenom, SnapChat went public on March 1st instantly creating a $24 billion entity, on paper at least. Actually, instantly overstates the truth, SnapChat has been around since cofounders Evan Spiegel and Bobby Murphy met at a frat party in 2010. So the fact is creating a $24 billion didn’t happen over night. In technology measured time, it took a nano century.
With social media mainstream apps like Facebook, Twitter, Instagram, you post a photo of yourself with all your friends appearing to be enjoying life fully, you add a cute comment and zap off it goes to your BBF and everybody else. Once you post it you own it, for better or worse. If caught on spring break puking your guts out in Daytona Beach . . . . . well, you get the idea.
But none of these potentially embarrassing moments ever happen with SnapChat. That is because, at your convenience, the pics and the chitchat all disappear within a brief period. SnapChat is not a one trick pony. You can also create cute animated features with your photos. So for example, if you are on spring break drunked up, making an ass of yourself and suddenly decide you want to look even more foolish, you can do that with SnapChat. You take a selfie and add the ears of a rabbit and the nose of a donkey. Now that is value added.
Why does the world another photo sharing, chitchat app? SnapChat was never aimed at my generation, although if Anthony Weiner had used SnapChat, who knows, today maybe he would be the President of The United States. Strange things this like this have happened.
Though we may not appreciate its mass appeal, SnapChat has more than it share of devotees. The IPO totaled roundly 200 million shares and reportedly was over subscribed by a factor of 10 times. This usually means that the stock will trade higher in the after market. Oh yes, there is one thing. None of the stock can influence the future of the company; it is all non-voting. Eat your heart out Mark Elliot Zuckerberg.
No company anywhere gets a $24 billion valuation until it has passed the sniff test by dozens of social media and tech investors including crowd funders, angel investors, venture capitalists and even a few ordinary bankers. So who are we to judge differently?
According to our readings, SnapChat claims an audience of 158 million daily users translating into 2.5 billion daily chats. That is chump change compared to Facebook’s billions.
Where on earth do people have the time after the hours spent on Facebook, Twitter, Instagram, not to mention Amazon, Ebay, messages, email etc. Did I forget to mention the thing about the US economy being at full employment? People are working these days. Where is there time for more social media?
Like so many other platforms, SnapChat is dependent on advertising revenues to fan the flames of success. The game is all about leveraging the size of the audience. The more users and the more daily chats the better advertising rates that follow.
It takes time and lots of capital to reach the top of the Social Media world. For all it success, Twitter is struggling. Less than 5% of all startup companies are successful (however success is defined).
So is SnapChat beating the odds? Here are a couple of measures that naysayers like to point to. SnapChats cost of acquiring new users is higher than Facebook and Twitter at a similar time of their development. The critics also point out that these costs are rising at a time when the trend should be in the opposite direction.
Last year the company lost $515 million on revenues of $404 million. This all took place while VC’s and other private equity investors were financing the company.
We remain cynical about the value of one more photo sharing social media platform. However, one thing really impresses. For greedy money hungry vultures like VC’s to willingly accept over $400 million in losses in one year and possibly close to $1 billion over time, makes a loud positive statement even from vultures accustom to making and loosing big bucks.
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