“Passing on Snapchat cost me $1 billion” — Chris Sacca
The most prominent venture capital investor of our era has all reasons to regret since Snap, Snapchat’s parent company, is due to IPO this Thursday to raise $3 billion at a $25 billion valuation with shares opening at $14-$16. There has been a lot of talk about their profitability, the voting rights, the founders themselves, their user growth and many question the timing of the IPO. Nonetheless, Snap which is currently valued at $18 Billion is meant to be the hottest tech IPO in years and here are the 3 reasons that convinced me to invest.
1- The people
When investing in a company, it’s not only money you give or a bet you make. You give trust to its founders, employees, partners… And they have earned mine.
Evan Spiegel and Bobby Murphy are two incredible founders who have successfully led the company from 0 to over 150 million users in 5 years with amazing innovations repeatedly copied by Facebook and others. They even had the guts to decline Mark Zuckerberg’s $3 billion offer because they knew there’s something bigger to achieve. Both respectively 26 and 28 are without a doubt the best suited to understand their user base aged between 13 and 35.
Snap’s team includes some of the best engineers, marketers, salesmen and managers in the world. Their CSO Imran Khan led Alibaba’s legendary IPO and their incredible board includes individuals like Sony Entertainment’s former CEO. When you compile this with the VCs backing them who are known for investing in Google, Amazon, Twitter, UBER, Airbnb and many more, there’s no doubt Snap is a brilliant execution machine that has all it takes to succeed.
2- The market
An opportunity is only as big as its market.
Many compare Snapchat to Facebook and Twitter to measure the potential success of the IPO. It’s neither the same business nor team nor market. Snapchat, is a mobile only messaging app and its parent company Snap defines itself as a camera company, not a social network.
Their revenue comes mainly from advertising and global digital ad spending is seen to reach $335 billion in 2020 where mobile advertising will account for 73.7% of the total spent. In parallel, Snap’s revenue has increased from $58 million in 2015 to $400 million in 2016 (580% in one year is pretty good) and forecasts see it grow tremendously for the coming years.
Also, the launch of their Spectacle glasses which allow users to take snaps with a unique perspective has been described as pure marketing genius. It’s another revenue driver — small I’ll give it to you but they’ve been continuously sold out since the launch and other innovations are to come as show rumors of Snap drone.
For those who like to compare, Snapchat users send over 2.5 billion snaps daily and spend 30min per day on the mobile only app. Facebook users spend 50min across all Facebook services (Instagram, Messenger…) and all devices (phone, tab, and desktop).
Beyond benefiting the selfie hype better than anyone else, Snap is surfing a giant wave like a pro. The opportunity is simply massive.
3- The vision
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” — Warren Buffet
When you invest, especially in a company where profitability has not been proved yet, you bet on a vision. Traditional metrics and forecasts don’t apply. It’s also why venture capital exists and Tech has overall been redefining how success is measured — Whatsapp acquired for $16 Billion is just one example.
Many have questioned the fact that Snap has very high operating costs and is not profitable yet. Yes, true, but the revenue they generate per user is increasing and they’ve stabilized their operating costs for the next 5 years thanks to a special deal with Google Cloud services. Profitability is on its way.
Also they’re putting everything in place to execute without obstacles. Snap’s shares will, for the first time in history, come without voting rights. This limits decisions investors can take on the company’s execution and allows the founders to keep their focus on the long term vision instead of short term financials. Moreover, the employee stock structure is rigid with a vesting period - time until which an employee can benefit from allocated stocks - long enough to keep the talented employees in the company and avoid seeing them leave to cash in their cut right after the IPO. The ground is set to move forward with success.
I’m excited about the IPO as Snap is raising $3 Billion to continue innovating and generate more revenue by expanding their user base and monetize better each user. I have no doubt they will succeed and become highly profitable. This is why I decided to invest.
Hoping this helps you forge your opinion, I just want to remind you that the decision to invest or not is solely yours and I highly encourage you to review all data (the S-1 filing is a minimum) and all possible scenarios before taking any decision. In the end, only future will tell. No regrets.
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