(SNAP) - A threat the market seems to be missing
Snap Inc. formerly named, Snapchat is an American company that specializes in social media and technology. Founded in 2011 by Evan Spiegel, and Bobby Murphy while they were students at Stanford University. Unlike other popular social media platforms, Snapchats focus relies more on pictures and video rather than texts and posts. In addition, pictures and messages disappear after a short time and become inaccessible which is another core feature that differentiates Snapchat from other social media platforms. Over time, Snapchat has grown from its humble roots of simple peer-to-peer media sharing app, into a more mature content host building features such as, “Stories” which allow users to upload short videos that appear for a 24-hour time span, and “Discover” allows brands to host ad-supported short-form content. However, the real differentiator for Snapchat is their focus on augmented reality content.
Snapchat improving corporate personnel positions
After the controversial app re-design in March, Snapchat announced their CFO at the time, Andrew Vollero would be replaced by Amazon CFO Tim Stone.
“Tim Stone, listed as VP of finance and the former VP of physical stores at Amazon, has been at Amazon since 1998. Stone will start as Snap’s CFO on May 16 and will report directly to CEO Evan Spiegel. Under his supervision, Amazon Web Services was scaled from ~$1B-$6B.”
We believe Tim Stone will have a measurable impact on corporate strategy and finance from within the company. For example, Tim was hired in February of 2018, and seven months later, Snapchat now has a strategic partnership with Amazon. The partnership between Snapchat and Amazon allows users to scan images or barcodes, snap a photo, and if it’s available on Amazon, the user will be able to click through to review or buy the product.
Kristin Southey, another valuable addition to the team, will act as the Vice President of Investor Relations. Prior to working at Snapchat, Kristin operated in a near similar role at Activision Blizzard for 15 years.
Lastly, Imran Khan, Snapchats Chief Strategy Officer recently stepped down which has largely been spun in a negative light by major media outlets. However, this is a move that conveys the companies maturing corporate mindset. Imran Khan had specifically signed onto the Snapchat team to lead them through their Initial Public Offering (IPO) process due to his experience as an investment banker. Because he doesn’t have direct experience leading a company beyond an IPO, he has chosen to part ways. We believe this indicates another vacancy for a major corporate executive to fill in a positive manner.
Capitalizing on growing consumer trends
Trends for streaming, live video, and social media have been on the rise and they aren’t slowing down. More age groups have begun to engage in these activities with Snapchat capturing 12% of live streaming in a study from November 2016. Ahead of Twitter and placing just behind Facebook, and YouTube.
The Snapchat application has more than 187 million active users daily, 1 million snaps are created daily, the majority of users are 18–34 years old, with females making up roughly 70% of the platform’s users. However, Snapchat only reaches 11% of the total US digital population. Whereas more than 25% of UK Smartphone users are on Snapchat, in Norway the number goes up to 50%. That means there’s massive room for platform growth in time.
Furthermore, users over the age of 25 will visit Snapchat up to 12 times daily for an average of 20 minutes a day! That in comparison to users under the age of 25 who visit 20 times daily, and spent on average 30 minutes a day. That’s between 4 and 10 hours daily! With more than 400 million Snapchat stories created per day and 20,000 photos shared every second, the numbers speak for themselves. That content generation indicates high user volume. The younger users will be an advertisement vehicle in their own right for Snapchat being that, millennials use word-of-mouth more than other adults.
Buyout target – Facebook, Google, Tencent
Snapchat has encountered buyout offers as well as unconfirmed buyout offers. In November 2013, Facebook attempted to buy Snapchat for $3 Billion USD. At the time, people thought Snapchat was crazy to turn down the offer. During a large round of private fundraising in May 2016, Google quietly invested in Snapchat through its investment firm – Google Capital. Then, about a year ago, it was rumored that Google made a 30 Billion USD offer to buy out Snapchat. Another large investor in Snap is, Tencent Holdings Ltd. They hold a large percentage of Snap shares as well.
“In describing its stake, Tencent, the world’s largest gaming company by revenue, implied a close relationship with Snap that could go beyond passive investing and involve assisting the U.S. company with strategy.” – Reuters
Digging into future emerging markets – Augmented Reality
The AR market sector is projected to rapidly grow over the next few years, and we are right on the tipping point of this trend going mainstream. Citi Research projects that the VR/AR market will expand to $80 billion in 2020 and $569 billion in 2025. Forecasts expect the market for headset sales and other hardware will expand from $3.6 billion in 2016 to $130 billion in 2025 (a compound annual growth rate, or CAGR of 49%). Additionally, the projections for market software and content will go from $3.9 billion in 2016 up to $276 billion in 2025 (61% CAGR)
Furthermore, Augmented Reality will be used in various industries for example Console & Mobile gaming, Amusement and Theme Parks, Media, Marketing, Education, and many others. This creates the opportunity penetration into various markets that will likely see tremendous growth from AR. This presents a huge opportunity for Snapchat as a first-mover into the AR market with their AR product – Spectacles. One of the largest variables to poor market growth for AR is their hardware is bulky, and uncomfortable for users.
Currently, there are breakthroughs taking place in the field of physics will largely augment the evolution of AR/VR hardware over the coming years. Recently, a group of researchers in Japan and Belgium begun exploring holography and light field technologies as a way to reduce the size and cost of mainstream consumer AR/VR devices. How does that work? Physical objects refract light in various directions, and at different intensities. The modulated light is then received by the human eye and visually reconstructed within the brain.
This research will allow for devices to generate that same modulated light however, it will not need the physical object present. First, the required modulation is numerically computed and then converted into light signals by a liquid crystal device (LCD), and then the light signals are picked up by other optical components including lenses, mirrors, beam combiners, and so on to form a true VR image.
It’s quite clear we’re bullish on (SNAP) and perhaps now you understand why as well. We believe the company has grown tremendously well in its short life-span and while it may have had a bumpy road with the recent drop in stock prices. We see it as a great opportunity to invest in a potentially very valuable company for the long-term as well as a great way to expose your portfolio to the AR market sector. Remember, Facebook and Twitter were not wildly successful right after their IPOs either, and it takes time to build.