Facebook offered $4B for the tiny photo sharing app back in 2013, and people were calling Evan Spiegel crazy for turning it down.
By mid 2016 the company was worth $20B in private markets, and Evan was a genius.
Google then offered to buy it for $30B, and was turned down as well. Evan was crazy again.
Snap IPO'd at a $25B market cap in early 2017, fell to $6B in a couple years, and then rose to ~$130 billion in late 2021, right before the tech downturn.
Today the company is worth $13B after its latest earnings report.
Look through time. Revenue growth has been solid. Ad market is a little wonky right now. FB gets over $30 per user per year, Snap at $10. Within 24 months could go up to $15, could be 500m users, 7.5 bill of revenue and they could easily reign in that cost structure and make a couple bill of net income.
And I can invest today in companies yielding 15-20% on cash flow multiples and more certain outlooks.
So why would I ever bank my money on Snap's growth continuing when that uncertain growth is already priced in?
Many tech stocks have been supported by "dreams" alone for years, never the fundamentals. Reality is setting in and multiples will be much, much lower.
It might be worth buying at ~2x sales, or if they cut costs aggressively and drive some profitability from their revenue
Which companies are yielding 15-20% on FCF with reasonably certain outlooks?
Nobody suggested you should.
What are the best examples of public tech companies have been supported by dreams alone for years?
It's already down to 3x rev after today's plunge, ~$13.5B and like I said they can cut from that cost structure and get ARPU up a bit here soon and they'll be cheaper than 2x rev and maybe single digit earnings multiple too.
Many many companies that were trading around 3-10x PE a week ago.
CTO and PINE are two REITs that were trading at 7x forward AFFO. Double digit projected growth in FFO/share. Implies ~15% yield plus growth.
NLCP trading at 60% of book value with 11% div yield and 0 debt, with double digit dividend growth rate. Many others. CWH, 10% dividend and PE of 4, implies over 15% yield.
VZ and T trading around 5 PE, implies 20% yield. Could list many more, but you get the idea.
As to the dream stocks, every company with 10x sales and no profitability... or essentially every tech co a year ago.
Despite a huge decline, NVDA still has a forward PE of 67 implying a ~1.5% yield, declining earnings YoY, when the 10y treasury yields 4.2% risk free. Or you can use a fwd FCF of 40 which implies a 2.5% yield... same result. It will easily fall another 50% from here in a recession scenario. Just one example
And yet despite the horrible numbers for many of these companies, and the huge bargains on less flashy ones, you have people choosing to invest at these absurd valuations. Seem they're learning the importance of fundamentals now
Maybe I'm looking at PINE wrong - it looks to me that it's doing FFO of around $1.60 per year and traded down to $15 odd. That's 9x, or 11% yield, not 15%. Despite my pedantry, it does look interesting.
CTO I can't figure out, I'll take your word.
The telco sector isn't looking great - VZ just posted down 23% and was already at 7x, not 5. So whatever multiple it looked to be trading at it isn't right now and the outlook is far from certain.
Google, Microsoft, Amazon, Apple were dream stocks once upon a time. All the really big outcomes once looked expensive. The business fundamentals eventually showed up in their financials - they were in a great competitive situation in a soon to be gigantic market. People who missed it had to learn the importance of business fundamentals and that financial statement analysis isn't sufficient.
There were some ridiculous prices for a lot of tech names during the pandemic, I'll grant that.
The thing with tech names is that you have to sort out the good from the not so good. Painting them all with the same brush will result in leaving money on the table either way. Everything trading at 10x sales isn't exciting and everything trading at 10x sales isn't at an absurd valuation. You have to actually do the work to understand the business and the market they are in.
The reason why VZ and T trade so low in value is because the teleco industry is a
commodity. Look at any other commodity stock, they all trade at low PE ratios with high yields.
There is no growth or innovation coming out of the teleco industry. VZ and T price are both flat since the introduction of the iPhone while if you bought Apple at 5x the PE ratio of VZ when the iPhone released you would have a nice return of nearly ~4000%
In the end using PE ratios and yields to say a company is cheap or expensive is pretty useless without look at the industry they compete in. Don't compare value of companies across two very different industries as well.
I saw stories on the google offer a few years ago. They had/have failed again and again at building their own social app so understandable they want to buy something. But Snap does not worth it due to a ton of NSFW-ish content. Does google need that headache? Seems bad fit.
Correct me if I’m wrong, but Snapchat invented the whole “stories” feature right? It got copied by all the other social media apps pretty quickly.
How do you even innovate in that landscape anymore? TikTok short form videos got copied quickly too. Gone are the days where something like Instagram can sit pretty with the whole vintage filter novelty, other companies just immediately copy it now.
Instagram copied TikTok as well (with Reels), but that went nowhere. ByteDance is now almost as big as Meta itself.
It is inevitable that there will be a thousand clones of every possible product or feature as soon as it is launched. It's on the company to give their users reasons not to switch away.
> Given uncertainties related to the operating environment, we are not providing our expectations for revenue or adjusted EBITDA for the fourth quarter of 2022.
Can anyone tell me what to make of this? That has to be a bad sign, right?
IME, companies usually only stop providing guidance when there is unusual uncertainty specifically to the downside. So in my view, it is a negative sign.
Not really. Leaving aside the fact that EDBITDA is a bullshit number, guidance is not something every company provides, and in my experience the "hitting the numbers game" causes companies to do sketchy things.
Yes they can - once the market stops believing them, private equity takes them private, cuts costs massively and streamlines, then gets re-acquired or goes public again much improved - minus the founder.
It is interesting how some companies have a valuation based almost entirely on this illusion. I'm sure there's a Silicon Valley episode that covers this.
This assumes a perfectly functional management. Unfortunately, management is a notoriously hard problem for scale-out. For 10x headcount, 20% productivity loss per employee is perhaps the best we can hope for. Unfortunately, it's usually 30~40% for a successful company and Snap is perhaps not an exception.
Many of these companies can be profitable, they just need far lower costs. Too many devs, too many PMs, too many marketing people.
Imo, this is as much a problem of products being built with no regard for costs. Most tech companies have distinct development and product roles...so if this is going wrong, why even have the product people?
The core product for SNAP should be highly cash-generative, this is the case for most tech companies. But, instead, they are often losing massive amounts of money because there is no economic logic to what they are doing. Most of these companies are run by people who got rich somewhat accidentally, by showing massive disregard to economic logic and then having an even dafter VC manager shove money into their mouth.
The question is not where do they go, but whether the current managers have the stomach to get there.
Same way Twitter is going to go under Elon. These companies are massive cash generating machines, that ultimately burn it all on excessive and unnecessary expenses.
They've built a great and popular product, be content with that and run it like a real business rather than an incubator of failed ideas
> They've built a great and popular product, be content with that and run it like a real business rather than an incubator of failed ideas
The problem for social media is that something new comes along, becomes popular, and displaces incumbents if they aren’t innovating, or at least adapting rapidly to innovation in the space. If you’re milking instead of moving, you’re going to wake up as MySpace.
What has Twitter innovated on in the last 10 years?
Granted they just released "Spaces" which is pretty nice, but I think you'll find the pace of innovation at these companies is quite low relative to their size. I think companies like SNAP and TWTR are fundamentally mismanaged on the product side. Very low output relative to the headcount.
At the end of the day, some businesses are niche and limited in scale, and that's ok. Right now every larger tech company is run as if they're trying to become a huge conglomerate.
Internal innovation will never be profitable. If you have a good idea, are you rushing to work for Twitter for $150k/year? No. Is anyone you hire likely to have an especially good idea? No, all the people with good ideas are self-employed...because they know the value of good ideas.
It is far better to milk your cash cow, and invest in acquisitions where possible (now, almost impossible legally...so the only component of the strategy should be: milk cash cow, return excess value to shareholders).
I’m not sure I agree with your first paragraph, but the second…. That’s pretty good.
If you’ve already extracted (milked) a billion dollars or more from the business, why do you care if you wake up one morning and your business is the next MySpace? That’s the employee’s problem, not yours. Sell the business to someone who hasn’t yet realized it has turned into MySpace, and move on to the next idea you’ve got. Or retire. Whatever you want.
They need to hope for a corporate raider. They will take the company private, fire 90% of the staff, launch a new mediocre product as a smokescreen while monetizing the crap out of the old thing, and then turn the new, profitable company loose on the markets again.
The drop in revenue per user is mostly due to regional mix. DAUs are up 34% Y/Y outside of North America and Europe, only 7% Y/Y in North America and Europe. Still, I think the answer is probably "aggressively cut expenses" and/or "position itself for an acquisition."
Fire the team, load up with debt, plump the numbers and find a bigger fool. Mine the brand rep and loyal user base. Sounds like a private equity dream, if interest rates were lower.
I think this is an unhelpful comparison. Simply put, when users exchange messages on WhatsApp it causes minimal traffic to a WhatsApp data enter as it’s mostly p2p. No ads, no persistence.
Snapchat requires semi persistence for stories (viewable for 24hr) and millions of users can view a single story. When a celebrity posts a story and 5mil users view it that requires more engineering effort that p2p what’s app messages. Additionally, serving ads requires a large amount of compute (ad ranking/serving), storage (impressions), offline processing (Hadoop clusters are hard), engineering, salepeople, economists, and auxiliary systems to support advertisers buying ads, etc.
User growth is almost entirely outside of the US, where they make as little as 10x less revenue per user, while at the same time EU Rev down 5% and RoW Rev down 10%. What a dog.
It was a tongue-in-cheek reference to their massive cloud bill. In a money-losing company with moderate growth, outsized infrastructure costs relative to revenue imply little moderation of the former in connection with the latter.
Being profitable, better monetization. Their revenue is almost flat YoY, thus not a growth company, yet they make almost nothing in profit. Twitter and many others are in the same position.
The days of riding a structurally unprofitable business model on revenue growth rate alone are over
It's hard to imagine how Snap has justified their expenses up until now. Unfortunately lots of employees will be hurt the most.
Snapchat had explosive growth in the beginning and just didn't capitalize on that momentum very well. They more or less did a whole lot of nothing with all of the money that was thrown their way.
Facebook offered $4B for the tiny photo sharing app back in 2013, and people were calling Evan Spiegel crazy for turning it down.
By mid 2016 the company was worth $20B in private markets, and Evan was a genius.
Google then offered to buy it for $30B, and was turned down as well. Evan was crazy again.
Snap IPO'd at a $25B market cap in early 2017, fell to $6B in a couple years, and then rose to ~$130 billion in late 2021, right before the tech downturn.
Today the company is worth $13B after its latest earnings report.