If your head is still spinning made possible by last weeks news cycle? Congratulations – you’re normal. Trying to keep up with any news, even just one element (e.g., business) has been a near task in futility. Politics (understandably) in one form or another is currently dominating everything, even business. So with that said, it could be argued why the most anticipated, hailed, saving grace for all that is “The Valley”, IPO to save the IPO world Snap™ (aka Snapchat™) filed its former “confidential” papers on Thursday. And the reaction? (insert crickets here)
Sure there has been the usual high-fiving chorus throughout the tech world, and in particular “The Valley” world. That’s to be expected. However, with that said, I want to offer up the following headline as possibly the reasoning behind so little fanfare. It comes from none other than Vanity Fair™ and ask if you have the same reaction as I did. Ready?
My initial thoughts?: Silicon Valley dreams of working for “stock options” and IPO riches meets its WTF moment into reality.
Why you ask? Hint: “rejoice”, “huge”, “$3 Billion.” equals “It’s different this time.” And not in a good way.
Let me phrase it this way: All this waiting, all the hype, all those “dreams” placed squarely on the shoulders of this forthcoming IPO – and all they get is a lousy $3 Billion and the CEO gets to keep (and wears) the “lousy T-shirt.” Yep: “rejoice” just seems a little out-of-place after that, doesn’t it?
Now $3 Billion is nothing to sneeze at. Especially if it’s “your” money that’s going to be the content for the counting. But this is Snapchat! You know, the supposed next Facebook™ (FB) if not FB killer.
Comparisons to other tech companies (e.g., Twitter™) brings a swift response from roadshow messaging, “We’re the next Facebook, Not The Next Twitter.” All I’ll say is investors better hope, pray, and give burnt offerings to help that insinuation along before the possibility the “burnt offerings” is their money up-in-smoke after the fact, just saying.
Again, here we have “the” most anticipated IPO to come down the pike in quite some time. Their shopping for this IPO has been done in near secrecy where “confidentiality” was the term used as to describe the process. Many thought since they waited till the “markets” once again were tractor-beamed into never-before-seen-in-history-highs that this IPO would be priced at the whisper number of $5 Billion reminiscent of FB’s. Especially given all that seems to be riding on this “unicorn’s” back.
Sorry, to be the bummer, but $3 Billion is closer both in math, and reality, to Twitter’s $1.8 IPO offer range, than it is to FB’s $5 Billion. And what may be even worse? Their filings seem to make that case even further.
In my opinion: This isn’t a good sign if you’re the supposed “David” in “The Valley’s” version of “Goliath” killers. Especially if you’re simultaneously held to be the IPO savior of tech. And there’s only one thing worse than “expectations” not being met, even if it is hopes, or dreamlike infused wishes.
What’s that you ask? Hint: When you state publicly that your business, a business that is looking to garner other people’s money who will someday be looking for a return on that investment read – they may never find that scenario ever possible.
Think I’m kidding? From their S-1 filing, page 19, in bold, italicized text. To wit:
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”
So, I’m going to ask you a question from a business standpoint: Why in the world would you include such a statement?
Some will argue this was just some boilerplate legal mumbo-jumbo that is constructed and stated in more differing ways than there are ants on the planet, and needs to be included somewhere within the fine print, where all this form of legalese gets inserted to be glossed over. And that would be a fair argument. However, if that’s the reasoning: Why in the world would you make this statement front, center, and unable to miss?
(I’ll just pause here, and let you fill in that thought you just had on your own. Remember, “investors” at these levels are supposed to be “sophisticated”, as in, they inherently understand potential losses. So why the need to make it so uncharacteristically prominent? Think that line over a few times, and try to square-that-circle on your own.)
From my perspective this not only appears troubling at first-blush, it get’s even further problematic as the cloud of “confidentiality” gets lifted further into the light of true business fundamentals. Why do I say such a thing? Again, from their own filings, page 36, and, once again, in bold and italicized, to wit:
“To our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange.”
Translation? If you don’t like what we’re doing with your investment dollars and assumed because you gave us your money we needed to listen to you? Screw you – it was right there in the S-1. Cha-ching!
The more I perused this S-1, the more I found myself thinking this seems to be nothing more than a legalesed filled document to do nothing more than solidify a founders cash-out with no chance of recourse. Or said differently: Screw what ever befalls the company and investors later. i.e., The “I’ve got mine – who cares about yours.” type of mentality that seems to plague much of what is commonly known as “tech” or “The Valley” stylized entity.
As always: Don’t take my word, or conclusions for it. Read the document for yourself, and come to your own conclusions. Especially if you are one of those just “chomping at the bit” as to be the first to ride this long-awaited unicorn. For there are warning signs throughout this document that anyone with a modem of business acumen will find troubling.
I’m sorry, did I hear you say, “It can’t be any worse than what the above portends?” Fair enough, so here’s another detail contained within page 4, once again, to wit:
Revenue increased to $404.5 million compared to $58.7 the year before.
Sounds great, right? Yep, until you also read they incurred a net loss of $514.6 million up from $372.9 million in the same period. Translation? More users – more losses. See above statements for what that may translate to “your” returns on investment hopes. And try not to think about the old “We sell dollar bills at 98 cents – but we make it up on volume!” joke as you try to evaluate what this business model should be worth, or better yet, how anyone could ever value it at $25 Billion or more. Only in “The Valley” is all I’ll say.
I’ll just end with this one statement, or observation:
Remember when making profits was seen as “just not getting tech” and you were relegated to “doesn’t have a clue” status if you dared to ask questions such as “profitability”, “net profits”, “return on investment”, and more? You know, when The Fed. was pumping in all that QE money? What’s happened since then?
Hint: A dried up IPO market, IPO’s that are still “in transition” that may never see light of day, IPO’s that were supposedly “the” new markets for their relative products are now seen as investment disasters. i.e., Look to TWTR, FIT, GPRO, TWLO, P, and others for clues, always remembering how they too were “cutting edge” when it came to messaging, cameras, wearables, and more. Because today? Hint: look to any stock chart.
And yet, here we are (again) today with another “app” that takes pictures so that people can augment their pictures or message – then goes “poof.” Just like it’s cash-burn status. And we’re told – “it’s different this time” (again) when evaluating its business model and metrics.
Sure it is.
You know what truly is different this time? The inclusion of the term “poop” on a S-1 filing.
Oh yes – that’s not a misprint. It’s right there on page 110 as to give credence to the “ads for eyeballs” fallacy. You just can’t make up stuff like that. No one would believe it.
No wonder this was all done originally under the cloak of “confidentiality.” Now that it’s hit the light-of-day? “Poop” may indeed have been a good term to include, because from my perspective…
This whole thing stinks to high-business heaven. Where many an “investors” bank account may also find itself. i.e., “Money Heaven.”
© 2017 Mark St.Cyr