... and neither do parents (but they will, someday).
The LATEST dig on Snap, and there are many over the past year, comes from New York Magazine, and it's appropriate to read a little of this before reading the rest of this commentary...
summarized: Snap is dead bc their UI change led to users dropping their app, and we can now "see" this in the numbers publishers can show us (at least secretly anyway).
There is just SO MUCH missing from this story, read on PARENTS!:
Let's first address why Snap is "quietly" talking to certain publishers:
Snap is "quietly inviting publishers" to attend summits bc they are hosting a not-so-quiet summit (this summit wasn't like a flash-party, it's been planned for awhile now), and they are doing SOME things quietly bc they are rolling out eCommerce to select publishers in a trial which surely will become full-ops eCommerce. By eCommerce we mean like "in-app" purchases being allowed, via Snap's future "app-store" like platform. Now let's address the more SERIOUS concern posed by this article, that Snap's UI change will lead to their ultimate demise bc advertiser are losing views for their ads...
What NY Magazine and even some publishers don't understand:
The UI change also brought about an algo-change, which reranks content in favor of the USER, not the publisher.
We know we know, it's hard to believe a company might actually have the user's best interest in mind when they makes some changes-- this in light of Facebook squeezing every shameless penny they can out of their poor users. Anyway, if you were a publisher with an early deal with Snap which put your content at the top of the Discover page, you probably lost a lot of traffic on the UI change bc maybe the content sucked and got reranked lower for a lot of users?
This might explain the "all over the place" comment. The algo will be volatile in the beginning, as it figures out user's preferences, but over time the algo learns what users like and pushes the most favorable content to the top.
To beat a dead horse, if you were once ranked #1 on Discover, you might be ranked #100 now, so you might see drastic changes to your traffic. But this doesn't mean that Discover usage has dropped 50%, it just means it might have dropped 50% for SOME publishers.
You have to keep in mind, writers get almost 100% of their source material from fund analysts (people like us) and managers. Think of it like a voting machine, if 500 people own Facebook, and 20 people on Snap, but they can all talk to a reporter, which way do you think all media articles are going to bend?
We can't wait until earnings, will be like Christmas day. After those earnings, we can't wait for the next set in August, and then again and again. This is because Snap has the superior app, the superior demographics, the better more efficient ad platform, and rising ad prices. Old people didn't like Facebook once too, then they wanted to be where their kids were, and voila, Facebook has 2 billion users. Where are the kids now?
PREFACE: our anecdotal information on the UI change
We just talked to someone today who loudly and immediately complained, and is STILL complaining about the UI change. Yet, when pressed, she said she still uses Snap as much as ever, even tho she still doesn't like the UI change. How's that??
Think of it this way, imagine if on every computer and software-keyboard in America some scientists decided that everyone would type quicker if they put the "e" where the "g" is. There would be an insane # of complaints, no? But what if the scientists were right? The young began typing at twice the speed of the old. that's a fake example. How about a real one? What if Germany changed how words are spelled such that spelling class is no longer needed because if you can pronounce the word you can spell it, even if you've never heard of the world before in your life-- someone speaks it, you can spell it. this happened, and there was PLENTY of backlash and complaining, some people just have an affinity for old things, like spelling color "colour". People with set habits complain about change, this has always been true, and always will be. Spiegel knew this, which is why he warned his investor base during the Q3 conference call that the UI change was coming and it would cause some noise. So let's dig into the REALITY of the UI change, instead of all the hype which $500 billion dollars of Facebook investors would loudly have you believe....
The UI change is appropriate.
If we was the CEO and you warned us there was going to be a backlash and that traffic would dip down 25% in short order if we change the UI in ANY way, we would still have implemented the exact change Snap made to it's app UI. If you remember, Spiegel ALSO implemented a controversial algo-automatic-ad-system for ads in July 2017 and his stock got murdered in Q2 bc of it. The ad prices dropped more than he would have hoped, bc adoption was slower than he expected out of the gate causing the auctions to lead to advertisers getting VERY cheap prices and thus VERY attractive ROIs. That advertiser's-market didn't last long however, it corrected itself by Xmas ad season, which you saw in the Q4 numbers. Spiegel was correct in making the fast-and-hard decision then too, now he's firing bad salesmen bc he doesn't need as many anymore, but also sales are going to climb MUCH MUCH faster due to the change, over the medium term. We actually thought that ad-automation change wouldn't right itself until Q3 2018, but here we are and by Q4 2017 the ARPU prices are already climbing like a mofo, and he's exceeding sales targets, about 3 quarters ahead of my best expectations.
But THIS change, won't be as drastic for shareholders as the ad-automation switch was in Q2 and Q3 2017
This is a VERY important concept bc it will likely manifest itself in the very next two earnings releases.
#1 the effect of the UI change might be a near-term positive, but most likely if negative won't be observable at all!
the drop in traffic won't be severe, in fact, in terms of revenues and EPS effect you won't be able to see it at all. This is bc there's SUCH a tailwind now with ad-auction pricing rising due to advertiser onboarding, you simply won't notice any drops in usages-- assuming there are any at all (see above). You have to remember, Snap usage in terms of minutes per day per user is still growing as of the UI change, so any "protest-drops" in usage only slow down the growth, not reverse it.
#2 Speed. The UI change is all about changing churn.
A 32 year old downloads snap, what % chance they subsequently delete the app off their phone? The UI change WILL improve that, bc Snap is hard on new users, particularly older ones. the UI change is designed to populate the app with SOMETHING, given older people (like you and me) don't have anyone that's on Snap thus a year ago if you downloaded Snap it would just be empty, and you'd never go back. At least with LEADING with Discover
#3 Ads more in the grille
Discover has more ads than the rest of Snap, so grouping a user's friends' "Stories" into Discover, helps make the app more sticky (for those who don't delete the app bc they are so steaming mad.
My guess is the UI change actually RAISED ad revenues this quarter, and caused maybe a pause in the growth in usage (due to some protesting). This is bc for users who are forced to keep using the app (and force is the proper word, bc the young really have no choice but to accept the changes, dropping Snap is like choosing to shun society for them, and go Ralph Waldo Emerson on the world), they'll now be subjected to more temptation to stay using the app, thanks to "Discover" (which is like a magazine tailored to YOUR tastes).
Personally, i never liked Discover bc it was populated with topics only a 17 year old girl could appreciate. But I noticed since the UI change, they are figuring me out, that I'm infatuated with NBA basketball (I know, crazy, but i have my reasons). So this morning they had SportsCenter moved up to nearly the top of my Discover page. It's the only one I opened this morning, thus reinforcing that i don't give a fuck about the Kardashians, and I like sports and particularly NBA. The algo is doing its job, bc the more it caters to me, the more i'll watch it. Also, Discover isn't just a magazine; it's TV. Young people mostly watch Youtube, not cable. So Snap is putting short-form TV shows right in their grille. Ever see a teenager on their phone, look what they are doing, they're on Snap. If they spend THAT much time on one app, why not put the OTHER addictive thing right in front of their face, the TV. Discover "shows" are addicting. I'll never watch Sportscenter bc my life is too hectic to reserve a spot at 10pm (or whatever time it comes on) to watch SportsCenter. But if they can shorten the show down to blurbs, blurbs I can skip (men's figure skating) and blurbs i can dive into in-depth (NBA, or Jui Jitsu) which is called a swipe-up, then I'm getting PERFECT television, no? I can watch Sportscenter, in 1/4th the time as a cable-TV watching Gen-X male, I can do it at 6am in the morning, or during my lunch break, and I can skip anything I don't like. That's fucking IDEAL. You and everyone my age and above, just doesn't know it yet, how awesome this app is. I witnessed the same thing with Twitter, but Twitter unfortunately really MIGHT be the app overrun by rivals (Instagram and Snap), whereas Snap is all alone with no competition whatsoever. Instagram has a little niche right now, with teens and 20s, but that niche is much more easily taken away by Snap UI changes, than FB CEO copying Snap features. FB is standing still, and the user numbers are telling that story, and it's only going to get worse.
We should ad that Snap ads are the LEAST obstrusive ads in social-networking-land, bc they can always be skipped quickly. GOOD advertisers will create such good content their ads aren't skipped, so GOOD advertisements are rewarded and BAD advertisements are shunned. This is ad perferction, bc it forces advertisers to learn quicker how to make better ads. In Minority Report, ads are EVERYWHERE bc they've gotten more efficient, more relevant, they anticipaate what you might need next, and if they don't, Snap lets you swipe them away-- QUICKLY. This is a feedback loop reminiscent of Google's ad system in its early days, and they should probably be ashamed they stopped innovating and Snap got there WAY ahead of Youtube. Know those annoying "Must watch" 20 second ads on Youtube, where they see you skipping too many ads so finally FORCE you to watch one? We'll make the call that due to Snap's rise in video (short form, more efficient, TV shows) ads, Youtube will be forced to copy Snap's ad system, and the longer they wait, the faster they will decline in growth. Wait for this to happen, bc you can then point to this article and say you saw it first, how the future of advertising will have changed due to the simple innovations of Snap and it's long-term-thinking CEO.
#4 Privacy as a way of life: explains a lot of what you'll see publically.
What has the FB fiasco all been about than privacy? This is what Snap does for a living, the snaps you send are like Pink Panther messages, they self-destruct. The entire app is all about privacy, your sh!t isn't broadcast all over hell, but just to your ACTUAL friends. We mention this NOT bc this is why Snap is viral, and NOT bc they corrected the long obvious flaws of their daddy social network; no, we mention it bc it shows what Spiegel values and how he operates-- his management style. He's never tried to publicly correct the media when they are dead wrong, and this time will be no exception. Snap will respond to this article, if they respond at all, on May 1 in a one-phrase blurb by Spiegel in the middle boring part of the conference call, and he'll do it in near monotone. Private. That's how they operate. Read the article on Snap's headquarters in Manhattan beach, the sign on the front door is small and you can barely see it. Snap Inc.
From a Financial Times article:
"Three security guards in black bomber jackets and a small wooden plaque reading “Snap” are the only signs that this patchwork of small office buildings houses the owner of Snapchat, set to be one of the largest US technology initial public offerings in recent years."
Nothing to see here.
What Snap and Spiegel are upto, he doesn't blast via Tweets like Musk and Trump. He's the "Just Do It" CEO, so when you think of him, think Nike. When you were a kid did you know who the two founders of Nike were? No. Did you know their political bents? No. Go ahead and search for whether Spiegel likes or dislikes Trumpeter or Hilliary, you won't find anything. why? Bc he's the only CEO in the world apparently who doesn't find it necessary to broadcast his religion and politics on social media. that's refreshing, and best of all it doesn't lead to young people boycotting his social camera app bc they don't like his politics.
Privacy as religion also is evidence of how Spiegel has thought way ahead of the competiton and has so for years. While Zberg is making an ass of himself in front of his own constituency (Democrats angry about election loss, older people who use Facebook, people who suspect he's not really human and make memes of his testimony and pass around the internets, etc... https://twitter.com/BravingRuin/status/983775963199746048 ), Spiegel isn't saying anything. He doesn't have to say anything, bc all that stuff people have posted on Snap app, it's gone. Did you make an idiotic statement when you were 17 about women or race or anything else you can be currently lambasted for? On Facebook that was stored forever by Mr Zuck, whereas on Snap it's gone like that embarrassing phone call conversation you had with your first girlfriend where you either begged for forgiveness like a little bitch or told her she was a goddam whore! It's gone.
but again, the point to #4 is that if you're hoping what i wrote above, about the algo-change perfectly explaining all this NY Magazine action, is all explained by Snap so that your stock price doesn't suffer in the near term, you're not going to get your wish. If lucky, again, it MIGHT happen in the boring middle part of the next conference call, in a one-phrase blurb which everyone roundly ignores or forgets immediately. If that's not for you, sell the stock and maybe buy it the day before the conf call.
BUT.... if actual PERFORMANCE is your thing,
...as in growth, revenues, and earnings (company might be profitable by Q4 if leaked internal message rumors from the CEO are to be believed) you might be pleasantly surprised one day. Interesting thing is: Spiegel is a big fan of Jobs, in an era where all Sillycon Valley execs think Bezos is the best role model. Bezos always did have a special situation, not taking away from his brilliant style at all, but it's not to be emulated by EVERYONE. what we mean by this, is Spiegel like Jobs will be profitable, he's not going to be about growth at all costs, and we already have evidence about this. He's going to be about maximum growth, but in the way that only maximizes over the long term. For instance, notice he never said Spectacles was a mistake, he said that making a big re-order for more of them based on early adoption numbers, was a mistake. Had he stopped at his first run, he'd have taken no write-down and could chalk up the whole experience to a nice test which tells him what to do next time. Made the mistake, admitted it freely on the conf call, took the writedown, and voila--> there's already talk of him doing it again. He's not nuts, he just sees way ahead of the rest of us, he knows that "Minority Report" and the camera are the future of tech. Just ask Johnny Ive and Tim Cook, they'll tel you the same exact thing. Meanwhile, Zberg this visionless dope (let's face it, the guy built his business on copying an idea-- a court case he lost-- and that theme continues-- Facebook is like Samsung exactly), went all-in on Oculus and it's been a total failure from the getgo bc he doesn't understand how technology works as it relates to economics and consumers. Zberg jumped on the hot buzz in Sillycon Valley, and forgot he's supposed to be a businessman. This is why Apple and Snap are R&D'g circles around him when it comes to A.R. which is where 99% of the money will be.
Snap is the telephone, AT&T (run by a technologist-businessman); Facebook is the Telegraph, Western Union (run by standing-still suits).
It is strictly our informed opinion, but we think $13-17 is an absolute steal for SNAP shares. Sure, it can go down in the interim, but we agree more with yesterday's Barclay's note which advises to get into some Snap before they report their next quarter (about May 1, 2018). We think the odds are about 20:1, and from our vantage point the probability of success > 50% as Snap's metrics really have been wonderful so far if you understand how early growth companies work (snap, at same age in revenues, is outgrowing similarly-aged Facebook, for instance). We say this while being absolutely terrified of the overall stock market, thinking it's entirely possible that any day now, or in the next two years we could see an epic 1929-style (or perhaps 1973-1974-style?) drop which changes everything. But there are ways to hedge for that, so in the near/medium term we think SNAP is one of the best places to invest mad money.
pictures source: http://www.sun-sentinel.com/la-fi-snapchat-history-unfurled-photos-20170302-htmlstory.html
Tweet source (which is hilarious): https://twitter.com/BravingRuin/status/983775963199746048