“Excess inventory and related charges – In Q3 2017, we recorded $39.9 million of charges related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.“<p>Looks like spectacles was a failure.
> <i>Hosting costs per DAU were $0.68 in Q3 2017 as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.</i><p>Those are staggering figures to me and the trend is equally surprising. Maybe it's ignorance about hosting costs at such a scale, but i feel like cost/DAU should be declining over time, right? Is there something i'm missing here?
The headline figure misses quite a lot:<p><i>Daily active users (DAU)(1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.</i><p>That's good growth year-to-year, but not spectacular. Still, they aren't being completely killed by FB/Insta/WhatsApp<p><i>Average revenue per user (ARPU)(2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.</i><p>That's really, really good news for them.<p><i>Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.</i><p>That's surprising and should be somewhat disappointing. It makes me curious as to the reasons - I wonder if it was international growth where they didn't have good hosting deals or something?
Snap went from an incredible growth rate to a terrible growth rate because of a few simple (and sadly, quite common) strategic mistakes:<p>1. Underestimating the competition.<p>Evan Spiegel clearly believed that Zuckerberg would never figure out how to beat him. He seems to have concluded that he was smarter, more creative, and more agile than Zuck. He profoundly miscalculated Zuck's relentlessness and is now losing badly as a result.<p>Takeaway Lesson: Hubris kills.<p>2. Attacking a market where you have few/zero major advantages.<p>Evan seems to have concluded that the only scaleable way to monetize a social app is with digital advertising.<p>The problem?<p>With <10% of Facebook/Instagram's user base, a tiny fraction of Facebook's ad targeting data, and a set of ad products that were 4-5 years behind Facebooks, why would any advertiser ever dedicate more than their 1-5% "experimental" budget to Snapchat?<p>Answer: They wouldn't, and likely never will.<p>Takeaway lesson: Don't take a juggernaut head on. You will get crushed every time.<p>3. Misunderstanding your own advantages.<p>Snapchat originally took off because it offered an underserved segment of the market (young people) something Facebook and Instagram did not: a <i>relatively</i> safe, low-judgment place to express themselves.<p>By focusing on the advertising market (and inevitably turning to privacy-destroying data aggregators like Experian to buy ad targeting data on its users), Evan threw that away.<p>Takeaway lesson: Never lose sight of the needs and desires that led your users to choose you.<p>More here: <a href="https://exponents.co/snap-facebook-key-competitive-strategy/" rel="nofollow">https://exponents.co/snap-facebook-key-competitive-strategy/</a>
Honestly, the best thing Snap can do to control their destiny is gut headcount by 2/3. If they bring their costs down so they aren't burning cash, they still have a highly engaged user base that is stable with decent advertising revenue. If they aren't burning cash like a wildfire, they can have some time to think strategically to build better user growth and engagement. Spiegel needs a strong COO like Sheryl Sandberg to put realistic controls on expenses.<p>As it stands now they are basically pulling a Twitter.
Interesting factoid: Snap's current market cap ($18.1B) is lower than the price Facebook paid for WhatsApp ($19B). Snap is now "only" worth $4B more than Twitter.<p>Does FB wait for the price to fall and take them out for $10B? Or grind them to dust to make an example of any startup foolhardy enough to forgo an acquisition offer?
The thing that is killing them is not the hosting costs, it is the ARPU. They are getting like $1 ARPU per quarter while FB gets like $4-5. That is what they have to change.
Oof, that is a staggering quarterly loss, how long will investors be willing to tolerate that when there are competitors active now in that industry, mainly instagram.
<a href="https://wolfstreet.com/2017/11/07/how-can-a-company-once-worth-30b-lose-443m-on-just-208m-in-revenues-heres-how/" rel="nofollow">https://wolfstreet.com/2017/11/07/how-can-a-company-once-wor...</a><p>Has a fairly bleak write up. It makes the point that if enriching the founders is the aim they are doing pretty well.
SNAP down 16% in after hours trading (at 4:54pm eastern time):<p><a href="https://finance.google.com/finance?q=NYSE%3ASNAP&ei=bSsCWpmnGsTcjAHz34eADA" rel="nofollow">https://finance.google.com/finance?q=NYSE%3ASNAP&ei=bSsCWpmn...</a>
Everybody talks about the advantages of immediate cashflow, while always ignoring these outcomes.<p>What did going public allow the company to do that it was unable to do prior to selling out? Did they just need the money to keep paying for bandwidth? Because that's the essence of the 1990s dot com game, with private venture capital being replaced by wall street investment firms.<p>Unreasonable demands for 'projected growth' is what always kills companies who otherwise, would be maintaining just fine.
$443m loss in one quarter is quite a lot. There seem large increases in R&D and sales and marketing expenses. Guess they are having to work hard to keep user numbers growing.
Can anyone explain to me what a Negative Accumulated Deficit means in a liability account?<p>As I understand it an Accumulated Deficit is the opposite of retained earning so a loss. But losses are positive values in liability accounts so we should invert it again and get back to an Accumulated Deficit. But instead of SnapChat adding this amount to their liabilities they're using it to reduce their it to reduce their equity.
They are burning a lot of money quickly but that is not the biggest problem. This is most worrying about Snap:<p>Daily active users 178M (est: 180.5M)<p>Their active users growth is very slow.<p>166 (Q1) -> 173 (Q2) -> 178 (Q3)<p>It seems that already slow growth is slowing down even more. They started the year with 5% quarterly growth, then went down to 4% and now barely 3%.
Snapchat needs to cut 60% of their workforce and then relentlessly focus on the iOS platform. Make a better spectacles and make it work only on iPhone. Let the Android app languish. This is the only way to long term success. This way they maintain exclusivity and also able to polish the app much better. For example the shit transferring experience on spectacles can be easily fixed if they optimise it for iPhone. And then the people who bought it may have actually liked it a bit.