Tuesday, March 07, 2017

Snap Crackle Pop

I’m losing credibility with investor friends with my bullish calls on Snapchat, when overnight the Snapchat IPO price of $17 popped to $25. I’m still convinced that at a $32b valuation the stock is overpriced, and any comparisons to Facebook and Google like growth are misguided. There are fundamental differences between Facebook & Google, and Snapchat, that need to be recognized. Snapchat will not grow precipitously off its IPO as Facebook and Google have grown.

Facebook and Google start off as websites, and are now full-on utilities, just as the water system pumps through New York. Living across desktop, mobile, and even other media, the two have amassed data that draws no comparison from any other tech firm. Facebook through clicks, profile information, interactions, location, and numerous other areas, and Google by search, tracking, clicks, email, and numerous other areas.

On the other hand, Snapchat has location-based data, interaction (limited), and is begging users for their birthdays. Its publisher platform may paint a bit more of a picture of users, but still nowhere near Facebook and Google. Snapchat is a mobile app, while Facebook and Google are utilities, and awkward claims from Evan Spiegel that Snapchat is a “camera company” bear witness to the existential crisis Snapchat may soon be facing, when it needs to spread its offerings outside the confines of a mobile app.

Along these lines, Snapchat faces existential threats from Facebook and Google in areas where neither Facebook nor Google had threats during their rapid ascents. Already, Facebook, through its core product and through Instagram, is rolling out disappearing content features similar to Snapchat, that are picking up major traction, where individual users have considerable more “followers” than they do “friends” on Snapchat. Facebook and Google have enormous scale, and experience adapting new technologies, that a simple misstep on Snapchat’s part could result in devastating blows.

Snapchat will fall victim to any one of a tech bubble burst, Facebook/Google product competition, investors realizing that the confines of Snapchat’s current interface are more limiting than anticipated. It’s current $32b valuation will fall short of its true value.

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