My Thoughts on Snap's IPO

With the IPO of Snap¹ tomorrow, I thought it would be useful to examine both the Bull and Bear case.² Snap has been a divisive company since the beginning, and never more so after the S-1 filing document was released. Below are a few bullet points for why the company could either succeed or fail.

Bull Case:

• They have executed flawlessly so far. This post by Ben Thompson ³ describing Snap’s product strategy (termed laddering up) is worth reading in it’s entirety.
• I find that they currently have a majority of mindshare with the teen demographic. Much of communication that I see among teens in the United States happens over Snapchat.
• The management team maintains all of the voting rights for Snapchat. If you think the CEO Evan Spiegal is a product visionary, his control over Snapchat will not change after the IPO.
• They’re cool and continue to innovate.⁴

Bear Case

• The S-1 document shows that Snap has an increasing cost per customer, while revenue per consumer is mostly flat. This puts them in a bad position, making it difficult to turn a profit.
• Facebook is actively trying to crush Snap and has been for awhile. After a failed acquisition attempt, Facebook tried to clone Snapchat twice. After those attempts failed, Instagram copied the story functionality from Snapchat wholesale, causing Snapchat’s growth to crater.
• To add insult to injury, Facebook is now testing similar functionality in the Facebook App.
• Snap’s entire strategy is based on out maneuvering the competition. If Spiegal somehow misses a trend and someone else can capitalize, thatcould spell doom for the company.

There is no wrong choice here. On one hand, Spiegal is a one of a kind product visionary and it makes sense to believe that he and Snap will continue to succeed. However, Snap is facing a challenge with Facebook’s blatant duplication of Snapchat’s core features. No matter what happens, it will be interesting to see if Snap can succeed or if market forces sink the company.