As I’ve always said, Snap doesn’t need to beat Facebook (or Instagram), it only needs to grow Snapchat’s services for, and its revenues and profits from, its young users. It’s not a contest with Facebook, despite the media’s insistence on portraying it as a Facebook vs. Snapchat showdown, and its generally irrationally-negative storylines for Snap and Snapchat. The multitude of articles by journalists and comments by analysts have been off-target with regard to Snap’s value to investors. For example, user-growth has become a financial industry obsession for social media. But, as a content marketing tool, a social media platform’s existing users and their regular engagement on the platform is far more important. Whether Snapchat adds users every month, or even whether Snap turns a profit in 1 or 3 years, is not of paramount importance. As an asset for a large media company, which, by virtue of buying Snap, would become the exclusive marketer of content and products and services to over 180M people every day (mostly under 25), all in one place, Snapchat is invaluable.
Consider that two of the most watched television programs of all time were Super Bowl XLIX, with 114M viewers, and the final episode of M*A*S*H, with 105M viewers. Snapchat has nearly 200M “daily” users (that is “everyday”, as opposed to “one single” TV show episode) to whom a corporate owner can advertise all of its content and products, without time, content, or format limitations, daily, for no cost(of course, the purchase price of the company would be a large one-time cost for the ability to have such unfettered and exclusive marketing to this viewership, but, the lifetime value of such unfettered, unlimited, unrestricted daily access to this audience/consumer base may be enormous in comparison to the cost to acquire it). Consider what it costs for a company to advertise for just 30 seconds during the Super Bowl. By owning a social media platform of Snapchat’s size, an acquirer could not only advertise all day, every day, to hundreds of millions of young people- but could also actually distribute content and sell related product to almost 200M viewers and consumers every day, with no advertising expense.
Going forward, entertainment content will be delivered to audiences digitally and 100% over the Internet, including through social media. Any content provider that lacks control of its own content outlets- including its own social media outlets- will be paying, for a lifetime, for access to someone else’s. Why would a large company seeking a way to market, advertise, and sell content and products through a global social media company want to to pay Instagram’s fees for the rest of its corporate life, rather than own its own global social media company.
Snapchat has extraordinary value as an asset for a larger media company (or larger technology company with media aspirations) in this media merger environment, where companies are desperately seeking large numbers of young viewers and where companies are desperately seeking to broadcast their content and sell their products direct-to-consumers (and provide more interactive and unique experiences through augmented reality and artificial intelligence).
If Snap is purchased for Snapchat’s loyal and young daily users, and for how that audience can be tapped for the marketing and sale of content and services exclusively by one large company, and for its augmented reality and artitifical intelligence tools and capabilities, then the only way Snap’s and Snapchat’s values can be calculated is by determining the value of an acquiring company’s exclusive, constant, and free access to the the hundreds of millions of daily, young Snapchat-users over a determined time period, and its adoption of Snap’s technologies to improve its existing products. In other words, it is impossible for anyone to know Snap’s and Snapchat’s values at this stage, except by evaluating Snapchat as a marketing and sales tool (and as a content-enhancing technology provider) for a specific acquirer.
CNBC regularly talks about augmented reality and about Facebook’s need for more young users, and about old media seeking its own direct-to-audience distribution outlets. CNBC’s anchors and guests even constantly talk about Twitter stock. But they almost never include Snapchat in the conversations. And big media- CNBC and Jim Cramer, included- appear to have lined-up against it. CNBC and Cramer will rave when some huge food company buys some $10M artisan cookie maker, or when Intel buys some chip technology that has yet to even enter the marketplace, but will continue to dismiss- and degrade- a social media company and mass media content distributor such as Snapchat, with its nearly 200M daily active users and $600M plus in 2017 revenues. How is Snap not much more of a likely and worthy takeout target for a larger social media or old or new media company than a new flavor of soda or a potato chip is for Pepsi- especially in an environment where companies like Disney are doing all they can to distribute content direct to consumers, and where audiences are cutting cords and spending so much time on social media- including on Snapchat- which has a higher time spent on-site per-user than Instagram, and where augmented reality and artificial intelligence technologies are in high demand and are high-growth industries?
Think about this: If a large media company, like a Disney or a Viacom, announces that it is buying Snap and can alleviate Snap’s expenses by incorporating Snap’s product development and marketing expenses into such acquirer’s existing cost infrastructure- and will now use Snapchat as its exclusive social media company to market and sell its content, how would you feel about Snap then? How do you think the stock would react? Or- think about this: What if one day you wake up to read that Tencent has bought another 25% of Snap and is working to launch Snapchat into China and to make Snap its exclusive U.S. video game distributor. How would you feel about Snapthen? How do you think the stock would react?
Here are 7 potential acquisition scenarios that, in and of themselves, make Snap a must-own stock to me:
1. Tencent could acquire Snap: Tencent of China, the world’s largest Internet company by revenues, is seeking international expansion of its multitude of digital services, including international distribution of its proprietary media and video game content. Tencent owns 12% of Snap. As Tencent seeks to grow worldwide, Snapchat’s nearly 200M daily users, many of them younger (almost 60% of Snapchat-users are under 25), is a compelling asset for Tencent.
2. Facebook could acquire Snap: Facebook and Instagram need younger audiences. Snapchat has a younger audience than both Facebook and Instagram. Additionally, Facebook can not get into China. If it wants access to China, it will need a partner like Tencent, a 12% owner of Snap. Moreover, Snap appears to be far ahead of Facebook in its augmented reality and artificial intelligence capabilities.
3. An “old media” company desiring to instantly modernize its content and distribution could buy Snap: Old media companies, like Viacom and Disney, need direct-to- consumer distribution. Snap does not need to be profitable for Snapchat to be a powerful vehicle for a large media company to reach large and young online audiences. Snap’s costs can be absorbed by a larger company’s infrastructure and cost structure to significantly lessen its losses.
4. Having exclusive ownership of the only available, large, multidimensional, social media company could be incentive to buy Snap: Twitter and Snap are the only companies that a larger company can buy if it wants to own a social media company that will have relevance in the broader marketplace. No other social media company will ever exist (outside of China) in a Facebook world. Snap and Twitter have made it this far against great odds. Any company that wants its very own social media presence for distribution of content and/or products must buy Snap or Twitter. Snap is more of a mass media content and multi-services developer, and third-party content broadcaster, than Twitter. Snapchat will be, more and more, an online entertainment and lifestyle service (including a video-gaming company, through the help of Tencent).
5. A major retailer could buy Snap: Target or Walmart could buy Snap for the purpose of keeping their names in the mix of young shoppers while advertising their stores- and everything inside of them- on their own proprietary social media platform. It would be like having their own Facebook- with access to the Chinese consumer through Tencent.
6. Any one of Snap’s individual products and services hold value for which it could be acquired: Any one aspect of Snapchat can make Snap valuable to an acquirer: It’s advanced and popular augmented reality tools; it’s young demographic; it’s 180M-plus daily active users; its social media category; or Snap’s relationship with Tencent.
7. Snap could be acquired just for its proven product development talent: Evan Spiegel is a genius digital product developer who doesn’t need to steal ideas from other social media companies. But they steal his ideas regularly. Snap’s talent, alone, is a great asset for a larger company seeking to grow social media services for the purpose of delivering its own content and products.
Of course, there are many more reasons to own Snap stock (related to commerce and entertainment). Just on fees alone for service referrals to Tencent’s multitude of digital services (including video downloads, online gaming, digital payments), or just by getting into the Chinese Internet market (unlike Facebook) through Tencent, or because of its advanced augmented reality and artificial intelligence capabilities to enhance a company’s existing content, Snap can be a home run. In terms of Facebookcompetition, Snap needs just one innovation or one exclusively licensed product where Facebook can not compete and it can be an instantaneous game-changer. Tencentcould provide Snap with exclusive access to any of its popular or newly-developed video game or entertainment properties. The acquisition scenario is the minimum and default reason to own Snap stock.
The risk is February’s revenue growth being lower than expected, or there being any loss of users or any lessening of the average time spent on the site by existing users. A widening of losses, if the aforesaid metrics are positive, is not as vital a metric under an acquisition analysis. No company would be buying Snap for its profit picture … or they will be waiting a very long time to make their play. Any acquirer would, itself, help to alleviate the earnings bleeding, or make the profit outlook an unimportant issue.
If chatter about the acquisition of Snap begins, we will see the stock of Snap … crackle and pop!
- For example, a publication called TechCrunch wrote that “talent is trickling out of Snap”, simply because one guy left (who by his own account, is simply a serial entrepreneur who craves new horizons). But the article fails to remind readers of how Snap has access to not only Evan Spiegel and his group of developers who are so good that they are serially knocked-off by Facebook and Instagram, but also to the talent of the largest Internet company on earth, by revenues, Tencent. I’m not sure that one guy who was with the company for less than a year is the difference for Snap.
- I have, herein, differentiated Snap, Inc., the company, from Snapchat, the service.
Neil S. Siskind, Esq., President
The Siskind Law Firm
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
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Neil Siskind’s Government Work:
– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern
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Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.
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