Snapchat: Let the Weight of Money Guide You on New Listings

There is a familiar ring to it. Friends getting together at University, which then spawns an idea, which turns into a multi-million dollar business.

Bill Gates showed that with Microsoft. Mark Zuckerberg with Facebook. And now it’s the same story with Snapchat Inc [NYSE:SNAP], the parent company of the insanely popular messaging app Snapchat.

For those not familiar with the app, a person on Snapchat can send photos and videos, called Snaps, to their friends. The Snaps can then be viewed for up to 10 seconds before they disappear. Cartoon filters, face swapping effects, and other functions have made this app wildly successful.

The idea behind Snapchat was to create an app which allowed users to share images that were explicitly short-lived and self-deleting. Everyone has a camera with their smartphone always on th

em, which can be used as a way to communicate with friends and family. The temporary nature of the images encourage a more natural flow of normal human communication.

Snap was created by Evan Spiegel, Reggie Brown and Bobby Murphy, who were all members of the same fraternity at Stanford University around 2010.

The original idea came from Spiegel, with Brown suggesting the feature of disappearing pictures. Later, Murphy was roped in to write the source code for the Snapchat App. There appears to have been falling out with Brown, who left after being paid out.

With its Headquarters in Venice, Italy, SNAP appears to have employed wisely as well, engaging Imran Khan as its Chief Strategist. He had spearheaded Alibaba’s IPO in 2014.

Looking at SNAP’s website might not indicate it has usual format of a NYSE listed company, with its simple layout and limited information.

However, the business is all in the name — SNAP, a camera company targeted mainly at millennials. Snapchat reaches about 41% of all the 18 to 34 year olds in the United States.

So what’s the buzz about?

Since the idea was born in April 2011, a number of features have been added:

  • The Geofilters feature, added July 2014, enabled special graphical overlays to be available if the user is within a certain geographical location, such as a city, event, or destination.
  • The Lens feature, added September 2015, uses face detection technology, allowing users to add cartoon effects into their Snap.
  • The Stories feature allowed the user to attach a story to the snap they send.
  • The Snapcodes feature allows the user to add usernames and phone contacts.
  • The Memories feature, added July 2016, allows snaps and story posts to be saved into a private storage area, where they can be viewed with other photos stored on any device with editing and publishing capability.
  • The Geostickers feature, added August 2016, allows city specific stickers. A number of Geostickers are available in several US cities, London, Sydney, Sao Paolo and Riyadh.

CEO Evan Spiegel describes Snapchat’s messaging functions as being conversational, rather than transactional, seeking to replicate normal conversations.

It seems to be working, because over 161 million people now use Snapchat every single day.

That means Snapchat have extensive marketing reach that must be appealing to businesses and the scope to monetise their popularity and grow future revenues.

Companies that are building a business relationship with Snap include Starbucks, Universal Pictures, Paramount Pictures, Verizon, Procter & Gamble, Warner Bros., and Express.

It’s not only the big boys, as even law firms are using Snapchat for publishing commentary and engaging their audience.

Some of the ways companies can use Snapchat to increase business and to build brand awareness is with Snapchat geofilters that drive increases in purchases via Snapchat sponsored Lenses.

For example, Taco Bell launched a sponsored Lens that turned consumers’ heads into giant taco shells, resulting in 224 million views in one day. The average user engaged with Taco Bell’s ad for a longer period of time than normal, and shared it with friends. The results surprised everyone.

Snapchatters who see their friends snapping photos with the lenses may be inspired to head to their nearest Taco Bell. They will probably also add Taco Bell to their list of must-follow brands on Snapchat, increasing the odds they will eat there in the future.

Revenues for the company are growing. Here’s the quarterly revenue by geographical region.

Source: Business Insider
Click to enlarge

The trend for revenues is up. The pressure is now on to convert those revenues into profits. It is certainly worth watching this space.

Snap which had an IPO price of US$17, opened strongly on the New York Stock Exchange at the start of this month at $24, a 40% increase on the IPO price, valuing the company at $33bln.

CEO Evan Spiegel must be really pleased, having turned down a $3bln offer for Snapchat from Zuckerberg in 2012.

After a week or so of trading, Snap is now trading slightly lower at around $20.

It’s of note when Facebook [NASDAQ:FB] listed back in 2012, it opened at $42 and more than halved, going below $18 in the first few months of its listing. The share price has increased nearly 700% since.

So we should not read too much into the first few weeks of trading.

There are a lot of opinions about Snapchat. But rather than to listen to opinions, let the chart build up some history, then let the weight of money guide you. The market will tell you the strength or weakness of revenues in Snapchat in due course, by breaking above prior monthly tops or breaking below prior monthly lows. You don’t need to form an opinion.

At Cycles, Trends and Forecasts we believe tech companies should perform well this real estate cycle. It’s all part of a larger cycle at play, where innovation and ideas flourish. You can learn more about that cycle here.


Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

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