Originally published on LinkedIn January 29, 2018
$100 Million Plus Revenue Strategy for Snapchat
At first sight, the title of this article might sound hyperbolic, worse case incredulous. However, neither is the case because its likelihood is all but certain. $100 Million is only 12.13 percent of Snapchat’s 2017, $824 Million revenue. This article is talking about an extra $100 Million from new markets and business expansion. The rationale is similar to the title of an unwritten article (evidence below). During the last week of Oct 2017; a thought came to mind, to forecast and analyze with empirical data how Bill Gates, Jeff Bezos and Warren Buffett, may worth $100 Billion before 2020, or in that year. Then I said forget it, it doesn’t fit my LinkedIn content strategy. A month later in November, just after Black Friday; the biggest shopping holiday in the U.S., different headlines broke the news about Jeff Bezos, as the first $100B man. That fortuitous incident negated further hesitation, thus compelling the writing of this article. The reasons are similar to the 2015 article LinkedIn The 100 Year Corporation. The 10 step justification below illustrate how Snap Inc., could add $100 Million plus in revenue to yearly sales.
* Please scroll to the bottom for circumstantial proof of unwritten referenced article. *
Tencent Buys 12% stake in Snap Inc
In Q4 of 2017, Tencent the Chinese conglomerate and world’s fifth-largest internet corporation by revenue, bought a 12 percent stake in Snap Inc. For a company that some say operates discreetly and is tight-lipped, that is significant equity for an outsider to start offering ideas. As long as the ideas contribute to its expansion plans, I don’t think it’s an issue for Snap Inc. Given the ferocious nature of Snapchat’s competitors, its guarded business style is practical and wise. Snapchat innovated and launched a great product which pushed social communications forward to the next era. Spiegel may come across as a reserved CEO preferring to execute behind the scene, however, being copied by Facebook, Instagram and WhatsApp will make a pragmatic leader act in that manner. Snapchat transitioned relatively quickly from launch to IPO. Going public was a great strategy to survive Facebook’s onslaught. Facebook copied its features and business. Given Q3 lackluster performance in 2017; the partnership with Tencent, the owner of WeChat, must be a welcome relief. Tencent will provide the much needed protection.
Growth & Defense Strategy
In the near future, Tencent will probably introduce Snap to China. Why will that be a big deal? Facebook, Twitter and Google are either blocked or have withdrawn operations. China has 1.3 billion people with 731 million internet users. It’s the world’s second-largest Ad market. Successful social sites and utilities in China have a minimum of 600M + users. Besides China, entering India and the African continent are huge opportunities too. Australia is another country to focus on. 1 in 6 Australians use Snapchat or 4M daily active users as of July 2017. Canada’s population is 36,286,378 and 88.5 percent use the internet, but Snap is the 8th most popular site. There’s certainly room for growth. Tencent’s business clout coupled with China’s global tech ambitions are two great reasons why Snapchat could be granted permanent status. Although the 12 percent stake was purchased when Snap Inc’s valuation was down, Tencent must have considered Snapchat in China seriously. For now, the U.S. which is its biggest market, doesn’t seem to be attracting new members in the tens of millions, as Wall St would like. Once Snapchat is in China, essentially three fundamental things will occur.
(1) More users (2) Open to Asian advertisers (3) Power to rival its nemesis, Facebook.
The $100M + Revenue Strategy for Snap Inc. (Justification)
1. Entering China = growing from 178 to minimum of 500 million users. That’s an increase of 180 percent. $100M revenue is contingent upon at least 330 million Chinese users.
2. That 180 percent growth attracts tens of millions in new Ad deals from Asian countries.
3. When in China: $100M in Yr 1 = [10 brands x $10M each Ad commitment] or [ 20 brands paying $5M each ] or [30 brands paying $3.3M each ]
4. What about sales? Tencent has connections to big Asian brands to expedite process. “Overall, ad spending in China is expected to see healthy year-on-year growth of 7.8% in 2017, hitting $84.4 billion.” Ad spending will keep increasing in the ensuing years. A U.S. brand will command premium because of global distribution effect and English.
5. Re-enter India officially and properly = 1.2 billion people. It opens more doors. Digital Ad market is expected to reach $3.8 billion mark by 2020. Yes Snap’s CEO made a negative remark years back about Indian and Spain, a public admission and sincere apology should hopefully fix that. Depending on perspective, some may say or argue it’s not as bad as Mark Zuckerburg who called Facebook users Dumb F*cks.
6. Enter Africa, a continent with 1.25B people. Albeit limited to countries with large population, internet access and Ad dollars, Nigeria, Kenya, Egypt and South Africa list.
7. The $40M Spectacles write down, could still generate some ten of millions in sales.
For points 8, 9 and 10 I can be reached via LinkedIn. There’s more
Upon entering China, issue new shares because stock price will increase in (24 to 36 months) by minimum 50-150 percent = larger valuation $36-$50B. The current Market Cap is $18B. Reduce equity dilution: so for Capex or Opex, sell from Authorized Stock. The Opex I’m referring to are the expenses incurred at the initial stage when they launch in a new country. Alternatively obtain a revolving line of credit at a low rate, much simpler.
Entering China, India and the continent of Africa = more users = more Ads = higher revenue = higher stock price. Snap Inc will definitely make more than $100M+ revenue.
U.S. population 300 Million: Revenue = $800 million in 2017
> China’s population 1.3 Billion: Revenue = circa $100M revenue in Q4 of 2021. ******* Achievable if entry is by summer of 2018 or latest Jan 2019 *******
> India’s population 1.2 Billion: Revenue = circa $70M by Q4 of 2021
> African continent 1.25 billion people: Revenue = circa $25M to $35M by Q4 of 2021
Variables In Above Extrapolation: 1. Ad market size 2. historical Ad spending trend 3. projected Ad percent growth rate for regions. Used a conservative estimate of 30 to 50 percent to arrive at 2021 revenues. Revenue numbers above are after operations have normalized, say 24 to 36 months and 70 percent penetration. Internet users in all the countries above are less than the actual population, babies and octogenarians are excluded.
How Certain is This Headline’s Claim?
I am positive that Snap Inc., will generate a minimum of $100M+ in revenue with the strategies listed above. Prior to Snap going public, it had Ad spending commitments of $100 to $200 Million from different brands. In 2016, WPP spent about $90 million on the platform, and a different company spent another $30 Million. Click this WSJ article to see the numbers. The claim is about Snap generating $100M outside of its current main market, the U.S. It’s about an additional $100M from new markets.
Snap & Twitter’s Market Cap and What’s Next?
In November 2017, Snap Inc announced that it will redesign the application, to make it easier. That means it will be easier for octogenarians, mom’s and dad’s to join. That might make it uncool, however that’s the sacrifice it would have to make given its 178 million daily users, as compared to Twitter’s 300 million and Facebook’s users. Spigel has always said from the onset that Snap is not interested in just numbers, meaning lots of users for numbers sake. They are more interested in richer and higher engagement. Unfortunately, Wall St will never agree to that, for analysis and comparative purpose; they lump Facebook, Twitter and Snap into one Social Media stewpot. New development; albeit Snapchat has 178 million users vis-à-vis Twitter’s 300 million, according to their Market Cap, both companies are neck and neck, as of Thursday Nov 23, 2017. Click Crunchbase link to see the comparison of Snap & Twitter.
Spectacles $40 Million Write Down
Do you remember Snap’s Spectacles which were hard to purchase? Unfortunately they had to write them down by $40 million in Q3 of 2017. Regarding the inventory stuck in the warehouse, a variety of things could be done to generate some revenue from the them.
Snap Inc’s Downgrade & Growing Power of Tencent Nov 1-13
A Lucky CEO or a Mastermind at Work
Spiegel must either be a genius strategist or extremely lucky. Snapchat started as a sexting App for teens, and the content disappeared after 24 hours. Hence, that was a well-crafted Machiavellian strategy with three legs. Let me explain; except Snapchat had plans to transition to a porn site and sell related Ads next to its content, it would have been difficult to convince even Playboy to advertise, talk less of P&G, Macy’s and other brands. The reason for implying luck is because when you start with something people like, especially teenagers, switching in that short a period usually has a negative effect, it translates to people leaving. In Snapchat’s case, more teens came. Snapchat as we know it today is predicated on getting this piece right, if not, it’ll not exist in the current format. It wouldn’t have threatened Facebook and there’ll be no IPO or Tencent.
The Genius Strategy with Three Legs
(1) Attract mostly teens via a sexting App (hence the allure for 12 to 24-year-olds).
(2) After millions join, change your operations to attract big business.
(3) Retain the fundamental disappearing act. (Hence the site with most engaged teens).
How Powerful is Tencent? (Snapchat’s Benefactor)
Tencent boasts the highest revenue growth among the world’s biggest companies. >Tencent now has ownership stake in Telsa and Snap Inc., which company is next? Tencent is the first Chinese Corp., to join (GAMA), an acronym the author coined. It stands for Google Apple Microsoft Amazon + Facebook at the $500 Billion valuation.
Unwritten Article (evidence from LinkedIn drafts)