Company Deep Dive: SNAP

I need to calm down. My enthusiasm for $SNAP has been ignited. As Renée Elise Goldsberry reminds us in Satisfied, let's "Rewind, Rewind"...

Last month, on June 11th, Snap held their 2020 Snap Partner Summit.

I've never held deep opinions about Snapchat. When it IPO'd on March 2, 2017, there was much fanfare.

At the time, Reuters reported:

Snap Inc’s shares ended up 44 percent on their first day of trading as investors flocked to buy into the hottest technology stock offering in three years.

The stock closed at $24.48 on the New York Stock Exchange on Thursday, well above the initial public offering price of $17 per share on Wednesday, giving the company a market value of $28.3 billion.

A year before I had actually given it a spin.

Truthfully, I liked the product. I just wasn't the demo. It didn't hold any value to me if none of my peers were on it. There was nobody to, as they say, "chat." So I quickly left. That doesn't mean it wasn't investable. It just wasn't for me, and subsequently, off my radar. For years.

Looking back, I didn’t mind sitting on the sidelines as it plunged more then 80% from its IPO to a December 2018 bottom. Not exactly something I was having FOMO about.

But this craving changed last month. The 2020 Snap Partner Summit.

Rich Greenfield from LightShed got the ball rolling (June 11):

Then the next day, he kept at it (June 12):

And he kept reminding me of it (June 23):

And again (June 29):

Like, okay Rich, I get it. I should take a look. So I started taking notice.

During this time (June 15), Packy McCormick also piqued my interest when he published “Oh Snap! The Next Great Platform Company Everyone Forgot About” (oh hey substack!).

I love his quirky takes where he argues the following:

Hype Cycles: We are catching Snap at the right time, as it’s heading up the Slope of Enlightenment. Others will slowly begin to wake up to Snap’s potential, you heard it here first.

Worldbuilding: Spiegel and Snap are patiently laddering towards a long-term vision so big that most people missed it.

Mirrorworld: Snap is building the next major platform - Augmented Reality. Aside from being a lot of fun, AR presents an internet-scale financial opportunity.

Sounds pretty cool, right?

Other highlights include:

So while us olds sleep on Snap from the outside, millions of younger best friends spend their entire lives communicating in there. We all underestimated Evan.

Worldbuilders are rare. Bezos, Musk, Carta’s Henry Ward. When you find one, you bet on them. I’m a little late to the party, but not too late. Snap is right at the beginning of the climb up the Slope of Enlightenment.

So at this point, my spidey-sense is officially up.

Then, the pièce de résistance. I see Turner Novak tweet his Q2 portfolio update.

Blink twice and you might miss it in the infinite scroll of Twitter. Is that Snap at more than a quarter of his portfolio? Why yes, yes it is. Why Turner, why?

So I asked:

Turner gave me homework! His piece, (more substack!), “A Deep Dive on Snap's Content Business, Augmented Reality Plans, and Valuation,” transformed my thinking of Snap. I won't quote him because the piece is two years old, but while some of the numbers and metrics may be dated, the premise and core theses are intact. If anyone wants to learn more about Snap (as I did), this is awesome place to start.

This line also stuck with me:

“A platform (Apple) with content (Disney) and advertising (Google).”

Awesome.

#1: At its core you have a social media platform with strong and growing daily active user numbers:

#2: With some pretty legit reach of valuable demographics:

(Screen grabs ⬆️ and ⬇️ from most recent earnings presentations).

#3: With completely underdeveloped monetization. (Facebook's ARPU was $34.18 for US/Canada in Q1 of this year, 10x of Snap's!)

Quarterly:

Annually:

#4: With a ton of room for growth:

#5: But above all, a bet on Snap is a bet on their crazy-innovative product strategy.

Some of these product highlights from the Partner Summit include:

A) MINIS

Via The Verge:

In an interview with The Verge, Snap CEO Evan Spiegel said Minis would help the company extend its reach to include e-commerce, with more social shopping experiences that let friends browse together. “Let’s say you’re getting ready with your friends, or your school dance is two weeks from now — you can actually shop together with your friends, which I think could be a really fun experience,” Spiegel said.

B) LOCAL LENSES

Via Cnet:

Local Lenses will build a map of a larger area in what's called a "point cloud," which will let lots of people walk around, see and create in the same visually changed version of reality. Collaborative world-spanning AR is being pursued by many companies at the moment, including Microsoft, Apple, Google and Pokemon Go developer Niantic, and is clearly the next step on the path to a round of future smartglasses.

C) CAMERA KIT

Via Protocol:

What Snap is attempting to do with Camera Kit is similar to Google putting a search bar into your browser, Amazon integrating Alexa into your sound system, or YouTube using embed codes to become the internet's default video player.

... It wants to be more than an app; it wants to embed itself in the infrastructure of the internet.

If Snap pulls this off, Snapchat's camera could become much bigger than Snapchat itself, and change the way users think about apps. Developers would build lenses and features for Snap's camera, which would then work in their app — as well as every other app that uses Snap's camera. Users wouldn't need to remember which is their diet-tracking app, which is their song- identifying app and which is the one they use for sending dumb selfies to their friends.

They'd just open any camera on their phone — and someday on their glasses, watches and super-smart contact lenses — and start snapping.

There is a ton more to digest from the Partner Summit. You can either watch it yourself (51 minutes):

Or check out Turner's excellent recap, “Snap Partner Summit 2020: Recap and Reflections” (less time).

But what about the fundamentals of the business, you ask??

Truth be told, fundamentals matter a little less when evaluating a company like this. This is not Costco or Nike. This is a bet on a product visionary at the helm of a company with an unknowable, potentially massive, total addressable market.

If we must look at fundamentals, however, Free Cash Flow is about to break free into the green:

But it’s still not profitable:

Nor is it’s valuation cheap.

But again, this isn't a bet on fundamentals. I'm hesitant to even look at other, more traditional metrics. They just don't feel relevant. This is a bet on the future. I promise the fundamentals of Amazon and Netflix didn't look amazing ten years ago.

What an exciting company to follow and invest in.

I feel compelled to initiate a small position, while looking to add more.

On the one hand, we're still not back to IPO-level price.

But we're also up 184% from March Covid lows.

Long $SNAP. Tread slowly. Let's go.