People misuse the crap out of literally. And they're like, oh, he literally had him eating out of his hand. It's like, no, he didn't. He figuratively had him eating out of his hand. But last year, whatever, Merriam-Webster added an additional definition to literally to mean figuratively. So now it literally means the sum total of everything that it means and everything that it doesn't mean.
Welcome to episode 32 of Acquired, the podcast where we talk about technology, acquisitions, and IPOs. I'm Ben Gilbert. And I'm David Rosenthal. And we are your hosts. Today's episode is the Super Bowl for our world, the Snapchat IPO. It's been long awaited, highly speculated, and everybody's got an opinion. And they are not all the same. So we're recording right now on Friday, March 3rd, exactly 21 hours after trading originally started. Trading is underway for day two. And hopefully we should be able to get this out to you guys by probably tomorrow over the weekend.
and get some pseudo real-time discussion going here on Snapchat. All right, listeners, now is a great time to tell you about longtime friend of the show, Vanta. So, David, I want to paint a picture that many founders listening will recognize. You're about to close your biggest customer yet. The product team has hit a bunch of milestones. The sales team built this fantastic relationship. Everyone at the potential customer is fired up. Your legal team has the contract done, but then an email comes in from the security team. Ah, yes, it's usually a very polite email asking something like, before proceeding, could you share your SOC 2 report? Or do you mind sharing your ISO 27001? If you don't have one...
That deal just went from closing this month to closing next quarter, maybe. Now you have to go find an auditor, go through every system, write the policies, and then prove that you follow them. Right. Or you could just use Vanta. They are the leading agentic trust platform, which means that you can connect it to your systems at your company and it automatically pulls all the relevant data and it tells you exactly what's missing for a SOC 2 and ISO 27001 or whichever framework your customer asked for. Vanta gets you through the audit and then it keeps going. It watches your controls every day afterwards. So the report that you hand to the next customer is still true.
Yep. And even more impressive is the Vanta agent. It continues to run in the background so it can find the issues and draft the fixes. This is the work that eats weeks of an engineer's time before an audit. And now it mostly just gets done before anyone has to ask. And the results are super impressive. A recent industry report says that Vanta's customers see a 526% return over three years and that it pays for itself within the first three months. If you've ever had one of these security emails stall a deal, you know exactly how that math works. More than 16,000 companies now run on Vanta. 16,000. Listeners, there were 2,000 when David and I started working with Vanta.
That's incredible what they've accomplished. And these are companies from large enterprises like Atlassian and Snowflake to the NuGuard, like Ramp and Cursor. We've been fans of Vanta for years. And hundreds, like literally hundreds, maybe even at this point, thousands of acquired listeners have become Vanta customers over that time. If you want $1,000 off, check out Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired. And just tell them that Ben and David sent you.
All right, listeners. So as you know, we also like to try new things on the show. And we have a little bit of a format switch today, which we'll tell you about. One thing that I wanted to try is reading some of our iTunes review here on Acquired. So when you guys leave one that we think is particularly worth reading on the air or funny or extra complimentary or something, we're going to read them. Kind of like the Bill Simmons mailbag, but for iTunes reviews. So here's one.
They aren't scalpers that want to create fake problems or to short a stock. Well, thanks, Spencer Camp. We appreciate it. And here's another. It's as if you are reliving the story with them as an insider from Peach 1987. Thank you. We appreciate that.
Ben has been a real trooper here. He was post-surgery and now he's back. Great show. MGMGMGMG3141. Well, to whoever knows me personally and knows that I had knee surgery last year. Thank you, MGMG. We really appreciate that. Ben has indeed been a trooper. Yeah, thank you, David. You're welcome, Ben. Excited to talk Snap.
So without any further ado, Snapchat. Yeah. David, we were talking about this before the show, but we should really only spend a couple minutes, I think, on the history of the company. Listeners, if you listen to episode 12, a lot of you, I think, have joined us since then. But we talked about this what if acquisition where Facebook made a three billion dollar. Yes, made a three billion dollar offer to buy Snapchat back in. It was the end of 2013, right?
uh time we run so fast anyway it was episode 12 for the you know as ben mentioned we're not going to cover the um the sort of all the story and drama around the founding of snap of snap uh which was on snapchat in the early years here but uh go listen to that episode i listened to it again yesterday to get prepped and um if i do say so myself i actually think it held it's held up really well even though the show has evolved a lot since then it's a good episode we recommend it yeah that was the episode it's funny when you do these things that uh When you do something new for an episode, it sort of raises the bar and you can never go back down. And that was one of the episodes where David and I did much more research than we had previously done before and kind of set a little bit of a new standard for ourselves. So, you know, I like that episode. I'm cursing it a little bit. But, you know, I also feel like it holds up. So that's sort of the that's part one of the Snapchat story. This is part two. And we will at all likelihood have a part. I think I think the only thing that we know for sure going forward is there will be more parts to this story. It is not over. Yes. So with that, we pick up our story.
for, for Snapchat in last we left them, it was fall of 2014 and Evan and Bobby, the plucky co-founders had fended off the previous year, $3 billion acquisition offer from Facebook. Uh, they'd launched Snapchat stories. They'd hit 50 million daily active users. Um, they just settled, uh, the famous lawsuit with their ousted co-founder Reggie Brown, um, that we talked about a lot on the last episode. Interesting that that has like been a total non-narrative in the IPO. Um, I think I'd saw like one new story about him, but, um, so things are going pretty well for, uh, for the Snapchat, uh, Snapchat.
founders uh and the company um fast forward through the next two years um you know it kind of would have been easy for them to say hey like we're gonna ride this gravy chain but uh they have been pretty hard at work since then they are not resting on their laurels so since fall of 2014 in rough order here's kind of what's happened on with snapchat uh they've launched uh discover which then became publisher stories they launched lenses they launched geo filters they launched a whole ton of new chat features um which are actually pretty cool uh and uh I probably use that more than anything else on Snapchat these days. They launched Memories, being able to save snaps. They acquired Bitmoji. They integrated that into Snap. And they launched Spectacles, which we've talked about in Hot Takes in the past. Yeah, on top of it all, they're now a hardware company. Yeah, on top of it all, they're a hardware company now. On the business side, they've also been hard at work. Revenue has grown almost 10x over the past year. But they also, this past October, October 2016, they launched their ad API, which was a huge milestone that advertisers can now buy ads through partners and through agencies and buy at scale without ever talking to Snap. So huge.
huge achievement for them. So, you know, I mean, you could sort of say that the freight train has been rolling down there in Venice Beach in Southern California. Yeah, that revenue stats interesting because in late 2014, that's when they made their first dollar of revenue. So it's really only been, you know, just over two years. And now they're doing $400 million a year in revenue. And obviously, all these multiples that we're going to talk about are just, you know, absolutely bananas for any sort of comparable stock public market stories that you would tell about it.
In two years to go from not monetizing your users at all to doing about 400 million in revenue is quite the acceleration. Yeah, very impressive. But along the way, there is one thing that happens to foreshadow later in the episode here that we're going to talk much more about later. In the last six months, their user growth has slowed. Some say many say that that's a result of something else that happened in August 2016. And that's Instagram launched Instagram stories. So much more to come on that front later in the show. But an important, very important moment in the last last year of Snapchat's life.
But undaunted, they proceeded with their much rumored IPO filing almost exactly a month ago, February 2nd. They publicly file their S1. And it's pretty clear when you read this document kind of right off the bat that this is not your ordinary dry SEC S1 filing. Others have talked about this, including Ben Thompson. But if you haven't gone and read it like we.
seriously recommend it. This is an incredible document. Whatever happens with Snapchat in the future, go read at least the Our Business section, which starts on page 93, and we'll link to this in the show notes. And we're going to spend a lot of time talking about this document. It's incredibly compelling, concise, clear writing, and the personality of the company just bleeds through. I would say I think this might be a watershed moment.
in thinking about something we've talked a lot about on this show, but like, what is the, the tool of going public? Like you get to write this document and you get to speak directly to this huge audience base, especially for a company like Snapchat, you know, is not currently your core user base. And, and it's a tool that, um, clearly the company thought about it this way and it's using it as such. Yeah. And so one, like one, uh, for listeners who haven't read the S1, because why would you go read S1s? But Dave and I did. And there's, there's a point where they talk about how part of Snapchat's culture and ethos is that they're kind. And this is a quote.
When we say kind, we mean the kind of kindness. Sorry. When we say kind, we mean the type of kindness that compels you to let someone know that they have something stuck in their teeth, even though it's a little awkward. Like, could you imagine reading that in an S1? Like, you know, even Ben, you know, you said, why would you know why would you go read an S1? Like, I really think this is this is a document worth reading. Yeah. For many reasons. Also the roadshow video. It's like an incredibly well produced way that that snap really told their story. And I'm not I'm not totally sure if it's still available because I think they pull those things down after the.
after the IPO. But there's lots of little clips of it floating around. And it's not just your standard person standing in a conference room next to a PowerPoint narrating it for a bunch of investment bankers. It's really like a consumer grade compelling story. It's almost like something that came out of Hollywood because it did. So we'll get to the actual IPO pricing two days ago in a minute. But sticking on the S1, the most surprising thing I think is...
just the nature of this document. But there are two other surprises in the document that I think a lot of the investor community wasn't necessarily expecting. And the first one is that there's a unique voting structure for the common shares that are being offered in this IPO. And what's unique about it is you don't have a vote. This has literally never happened before. Companies have gone public with dual class or even three classes of share structures that allowed management and founders to retain, you know, effective voting control of the company. And David, those examples are there's Facebook and Google didn't go public this way, but have modified to sort of. I think they did both go public with those dual class share structures. And it's something they learned from the New York Times.
Yeah. So historically, a bunch of media companies have had this. News Corp has had it, the New York Times and a bunch of others. It was for whatever reason, it was in vogue with publishers and media companies, you know, at some point in the 20th century. And tech companies have really sort of taken this tool and run with it. But this is like this is breaking new ground here. So, you know, the thing about those other IPOs, Facebook, Google, even the media companies like.
Usually there's a 10 to 1 voting structure where each share of the founder's stock has or the CEO stock has 10 votes to every one of the public stock. And there's a market for those stocks. founders and CEOs sell the stock, then, you know, you can buy that with with separate voting shares. And that's important because, you know, not for individuals voting necessarily, but like activist hedge funds, activist hedge funds have made use of this to amass a voting block in a in a in a stock and then use that to agitate to try and get a representative elected to the board of directors. It's been a tool they've used. So Snap says and for other reasons to to like Carl Icahn has done this with with Apple and.
I think with eBay to advocate for a buyback or a distribution. More dividends or all sorts of things. And there's a view, probably not unjustified, that that's really an annoying thing that you want to avoid. But, you know, this is an extreme case of, no, you get no votes. Not now, not ever. And what a baller move to say like, hey, you know, we're going to sell what is like 19% of this company, you know, and we think at this price point that even with no ability to have any influence, even if all of you get together on the future of this company, it's still going to be oversubscribed.
Yeah. And what's crazy is it's not even just they're actually three classes of Snapchat shares. There's what they're selling to the public. You get no votes. There's.
shares that existing investors, VCs have in the company, they get one vote. And then there's shares that Evan and Bobby have, and they get 10 votes. And if Evan and Bobby ever sell their shares, then they automatically convert to the other investor shares. So there is one vote, but essentially it's set up such that if something were to happen to one of them, and they've actually filed proxies with each other, and this is in the S1, if something happens to one of them, the other gets essentially full voting control in perpetuity of the company. Wow.
Crazy. So that's one. And then the other surprise in there, and this actually, I'm really surprised that this has not gotten a lot of press. There's this thing. I don't know if you saw this, Ben, this little thing called the, quote, CEO award in the S1. And what this is, I have never seen this before. So Evan, Evan Spiegel, the CEO of Snapchat, upon completion of the CEO of the IPO on Wednesday, he got essentially a bonus of an additional 3% of the company after the IPO. So he already had a 24%.
equity share in the company um and uh and and the company essentially you know gifted him as a bonus for completing the ipo another three percent even after after the dilution of the ipo and so at the 17 ipo price which we'll talk about in a sec um that's worth 625 million dollars that the company gave to evan for successfully completing the ipo well this is i've never seen this before that's a weird incentive like i mean it'd be interesting to see like when i guess once you already committed to going public it sort of makes sense to incentivize Why would his incentives not be aligned? I mean, he owns 24% of the company, which at the IPO was worth almost $4 billion. But somehow, I'm sure it will never come out, but I would love to know how those negotiations went down. Well, it's him negotiating with the board or with the syndicate of investors taking public? Well, it must have been everybody, but it has not gotten a lot of press and I'm quite surprised about it. I mean, I can imagine a situation if you have an external CEO come into a company and you can incentivize that person by...
you know, a bonus if they successfully complete an IPO. But this is where Evan's literally a founder and along with Bobby, the largest shareholder in the company. Very, very interesting. Yeah. So despite that, on Wednesday, March 1st, two days ago as we're recording this, Snapchat prices its IPO. They price it at $17 a share, which is above the range that they'd indicated of $15 to $16, which is there's a whole theatrics to this. But it could be below what the sort of murmur on the street was for months before, right? People were thinking more in that $20 range. Yep. And not that much higher. I don't remember exactly what it was, but not that much higher than the share price that they sold equity in their last private round at.
But but regardless, that gives them a twenty four billion dollar market cap at pricing. And then yesterday on Thursday, which is an up round from their previous financing, despite talks of that, that fourteen to sixteen dollar per share range would have been a down round. And that would have been that would have been kind of crazy because that would have been bad. Yeah. Yeah. A whole bunch of recently issued stock options that are actually currently worth less than their stock price. So if that had been the case, then there would have been a lot of finger crossing that the stock did pop and that by the time employees could sell it there, their lockup that when the lockup time ended, that it would actually be above the initial strike price of their option grant. But none of that's an issue. It actually did.
price above their last round. It did price above. And like we said, a $24 billion market cap pricing opens trading yesterday and the market likes it. So 44% pop on the first day of trading closed the first day at $24 and 48 cents. Almost over 200 million shares were traded, which is a lot. And
And the market cap, the valuation of the company at the end of the day, $34 billion. And then this morning, Friday morning, the market continues to like it. It's up another almost 20% trading in the kind of $29 range. So, so far, a successful IPO. We have not had any Facebook-like disasters. No. And they did take longer to start trading yesterday. But that was by no means because of a technical hiccup like with Facebook. But because actually, despite the fact that the IPO price was $17, started trading immediately at $24. So, you know, the...
the trade-offs there when you look at who won and who lost. Snap left a good amount of money on the table, about a billion dollars on the table by not... by not initially setting it in that $23, $24 range. Snap's syndicate of investors or bankers that took them public didn't get their cut of that billion dollars. But everyone that bought the IPO at $17 got to take advantage of that short-term bump. And realistically, we'll talk about this as we grade the IPO, but this all really accrues as value to Snap because in getting this positive momentum, it's great for hiring, it's great for customers, it's great for the story around the company that they went out. The amount of those has been huge. And that this, by all indications thus far, has been a quite successful IPO.
It's going to be great for the company. But that said, you know, we're talking this is a lot of mechanics here and one day in and one day in. And even though we're lauding the S1, it is still pretty. A lot of it is pretty dry stuff. You know what we want to spend the bulk of this episode talking about. And the really interesting thing to think about is like.
OK, you know, what what happens next? There's all this buzz out there right now. People have all sorts of different opinions about, you know, Snap is doomed. Instagram is going to kill them or Evan Spiegel is a once in a generation product genius. Where does the truth lie? And so that's what Ben and I have been thinking about over this past week. And we thought we thought we're going to the best way to do this is we're going to introduce a new section to the show that we might use for IPOs going forward. And we're going to call this narratives. And our idea is that there are really two.
narratives that are being told throughout an IPO. There's an IPO process. There's the narrative that the company wants to tell through their S1, through their roadshow and and all of the statements that they get to make, both written and otherwise. And then there's the narrative that pops up around it in the media, in the investor community, in the tech community, everybody reacting to what's happening. And so we thought we distilled what we think are kind of the three.
most important points of both the narrative that Snap has been trying to tell over the past month and the narrative that the media and the investor press has been telling. And we're gonna talk about each of them and sort of judge how much we agree or disagree with them. We are. So let's start with Snap. You read the S1, you watch the Roadshow video, and what immediately pops out, and this got tons of press, but I think it was just a brilliant way of positioning that the company took. You read it and it says, we are a camera company. They don't say we're a mobile company. They don't say we're an app company. They don't say we're a social network. Snap is a camera company. What do you think, Ben? I mean, the first thing that came to mind, I'm reading a lot of the S1 cynically, so the first thing that comes to mind is, oh, I see, they don't want to be comped against Twitter.
That makes sense. But the interesting thing is you start to read more and more and more. And this is my biggest takeaway from this whole thing based on the insane. Let me just give a quick like Snap at their $33 billion market cap is trading at about 80 times their sales. Facebook IPO to like 28 times their sales. Even Twitter was like 56. We're just in like off the charts territory for what their market cap is relative to the revenue that they're doing. And when you when you start to peel apart, like why are they saying they're a camera company? The big thing that stands out here is that they don't want investors to buy this IPO.
based on the product right now, the social graph right now, the growth rates in the last six months, they don't want to be priced on any of that. They want you to believe that they've done these incredible innovative things, transforming what we think of as a camera and what we use cameras for. And they want you to buy on the idea and hold on the idea that they're going to continue to do that and reinvent the camera for the future. And that they, you know, in typical Evan Spiegel Snapchat fashion, they're... they're unique and they believe that they are indeed a different and new type of company. They're going to do things their own way. And like, who are you to say what kind of company this is? They're a camera company and you don't even know what a modern camera company looks like. Well, this is what, um, you know, when I say this is brilliant, um, it's just a, it's such an unexpected and audacious statement to put out there.
that it captivates you. And then when you read through the S1 and you watch the Roadshow video, it's very compelling how they present it. You know, sort of famously at this point, the first user manual for how to use Snapchat is the S1. And they go through and just really exquisite detail about all the product thinking that has gone into how they've created Snapchat. But what it does, you know, and this is what I said when I when I introduced this, what it does by positioning it as a camera company is it completely draws attention away from what heretofore and still is the narrative on the media investor and tech side of the aisle here about Snapchat, which is that they are a social network, which is competing with the social network, which is Facebook and Instagram and WhatsApp. Yeah. The other two things I want to say quickly about this idea and positioning of Snap as a camera company is one, it makes lenses really interesting.
lenses you know obviously it evokes a camera um but lenses are the one sort of piece product feature that snapchat has that instagram doesn't yet um and what's interesting is you know you read through the s1 and i was thinking like okay well like how how many people actually use lenses um and apparently a third of snapchat users use lenses every day um and that's what you know and you read through and all the technology investments and infrastructure investments that snap is making a lot of that is going into um the technology powering lenses which starts to make you think about um the next generation after mobile and augmented reality and of course their spectacles um you know is snap kind of setting up um using the ipo and their s1 to set themselves up as uh being positioned for the next wave in tech and putting a stake in the ground that they believe that's going to be augmented reality oh man yeah it's super interesting to think about you know when they say uh you know snap is a camera company well like kodak was camera company and then like today like is apple a camera company or you know sony and samsung make the actual the actual actual lenses that go in there so are
they the number one camera quote-unquote camera manufacturer in the world and you know i'd be a little bit more skeptical of snap saying they're a camera company and except that they have they actually do the full stack and making the hardware now of of uh of spectacles and realistically those are probably uh oem'd in by um by the same folks that make the actual lenses and actual sensors that are in smartphones but as you continue to extrapolate that um so let's look at apple as a camera company we uh we cross over from um from like pure optics based cameras into hybrid optics and software based cameras like several years ago in the smartphone generation. There's with such tiny little lenses and sensors and they're so close to each other. There's not a lot of like actual physics that would produce high quality images. And we have to like do a lot of really tricky faking and kind of like post-production and software that the user is never exposed to. And that's suddenly with the iPhone 7 Plus become extremely.
visible with with the fact that there's two lenses there's a they never expose the fact that you're switching from wide to telephoto there's just this like you know smooth slider into 2x and the thing that's really doing there is like it's always in real time compositing a mashup of the two lenses and doing a lot of really advanced computation on the fly, not just for portrait mode, but always to be taking advantage of both of those lenses. And I think that's actually a great analogy to what lenses in Snapchat are doing, right? Like that is augmented reality. And that requires a lot of processing power and augmented reality thus far in virtual reality have been these really clunky things that nobody wants to cost a lot of money that it's unclear what you do with them, you know? But Snapchat just makes that really easy. It's just all behind the scenes. And as we learn, we'll talk about this in a minute.
It's costing them a lot in hosting fees and technology resources to be able to do that. Yeah, totally. So to close on that one, I think when they say they're a camera company, the world has moved to a place now where a camera is not just a physical thing. A camera is a full hardware software services stack. And that starts when you think about what a quote unquote camera is that way. And the fact that maybe it's a hardware software services network stack that starts to lend a lot more credibility to, oh, I see Snapchat is really the full stack of the modern camera. All right, listeners, now is a great time to thank our longtime friend of the show ServiceNow. So, David, here's a question that I.
do not think most enterprise CIOs or CEOs could actually answer today if they were asked. How many agents actually run inside your business? Yes, I don't think anybody really knows. And of course, then there's the harder questions like, what can they access? And who gave them that access? And is any of this paying for itself? ServiceNow has an answer to all those questions. The super intelligence control tower. As friend of the show, CEO Bill McDermott says, it's the one place to see, secure, measure, and help govern your agents' models and workflows across your entire business, no matter who built it.
Yep. So for example, it finds the agent that someone in procurement spun up on their own and then tracks what it's doing and its ongoing cost. When the CFO inevitably asks whether any of this is working and if there's ROI, you'll be ready with a number. And importantly, if something goes wrong, it can detect and revoke access immediately. There's even a kill switch built into the product. And ServiceNow is uniquely positioned for this because they've spent the last 20 years building the operating backbone of the enterprise from IT to HR, sales, service, and cybersecurity. They know how work gets done, helping support over 100 billion workflows a year.
across more than 90% of the Fortune 500. The world's most complicated businesses, like many that we've covered here on Acquired, already run on ServiceNow, and now they're running their AI there too. If you're trying to turn AI ambition into real outcomes, just go to servicenow.com slash acquired and just tell them that Ben and David sent you. So we're going to number two? Yeah, let's do it. So the second main point in Snap's narrative that they'd like you to believe is that they are a brand advertising business, which is fundamentally different than the gigantic elephant in the room major ad networks on the internet right now of Facebook and Google. And what they're really saying there is we are attacking TV, not print media. And for anyone who hasn't played around with the Snap ad platform versus Facebook or Google's ad platforms, on Facebook and Google, you can do pretty incredible targeting and you get to really finally get extremely granular on what type of demographics you're reaching.
And you also, you know, like when you're when you're using Google remarketing and things like that, like you can you can track people around the web and you can do all sorts of things. Snapchat is a super like, at least right now, privacy first. We are not going to give you incredible targeting. You buy big, broad swaths like you would a television commercial and you just reach a bunch of people. So they're fundamentally driving for scale there the way that you need scale for brand advertising businesses. And the other thing is that you can't really.
like click through a Snapchat. There's no way with those Snapchat ads to, you know, land on someone's site and have them optimize conversion rates and all these things. In the same way that Google and Facebook with their app install platform, like that's what they are. Totally. They're conversion machines. Yeah. Yeah. It's more like here's a new Chevy. Think about Chevy a lot. Yeah. Well, and there's just like there are a couple of really, really important points here. You know, one, Snap is making the argument here that, as Ben said, you know, they are going after TV, after television. They are not going after, you know, in a lot of ways.
the internet advertising to this point has been a reinvention of kind of the classified ad you know um the direct response um tv has persisted but tv is is not measurable uh in anywhere near the same degree that traditional online advertising is um and it's smaller like the the number of people in the us who watch tv um is large, but relative to the number of people who use Google, who use Facebook, et cetera, like it's much smaller. But what TV has that Facebook that Google don't is engagement. And the whole snaps whole narrative around this is we have engagement. Yes, we're smaller than Facebook. Yes, we're smaller than Instagram. Yes, we're even smaller than Twitter. But they make they make go to great lengths in the S1 talking about, you know, the average Snapchat user opens the app 18 times a day. This is on average for 20 to 25 minutes, 25 to 30 minutes in Snapchat every day. And.
They argue that that is the same level of engagement that television has historically seen. Yeah, and we should call out that despite the fact that there's way more time spent in front of a... a screen, be it desktop or a phone screen interacting with apps in the web than there is on TV. That sort of happened a while ago where people are spending more time on the internet than they are in front of TV. But until 2017, this is the first year that this is actually going to happen, the ad spend has totally lagged it. So the ad spend on television has outpaced digital ad spend. And finally, we're going to have this catch up where the dollars are five to 10 years behind the switch in engagement. So Snap is, I think they even say this in their roadshow video and possibly their S1, that they really have a tailwind here of, you know,
The dollar spend from advertisers is they're looking for a place in a digital format because that's where all the ad buying is shifting because that's where all the attention and engagement is. And they're looking to buy the sorts of incredibly broad Coca-Cola style blanket the entire world with advertising for their brand. And they're looking for a place to deploy those dollars and produce the effect that they're used to spending. And brand advertising is just – I actually don't know the numbers, but it's significantly larger than this direct response advertising that's dominated the web to date. Yep.
And so then let's jump to the third, the third piece, critical piece we see in Snap's narrative, which is really the, you know, taking one, you know, we are this revolutionary camera company. We're not what you think we are. We're a new vision. And we're going after this market that is very different from what other internet companies have gone after before. The reason we're able to do this is that our founder, co-founder and CEO, Evan Spiegel, is a once in a generation product genius. And this has been a narrative around Snap for a long time.
Actually, again, to plug our previous episode, shameless self-promotion here, the previous Snapchat episode, we actually dive into Evan's history. And he's not just some random kid who dropped out of college to found another app company. It was pretty clear. from his early days at Stanford that he had some very special talent. He talked his way into the D School, which is normally reserved only for graduate students and is probably the most famous design school in the world. David Kelly, who founded the D School and was the founder of IDEO, the consulting firm, ended up becoming Evan's direct advisor. And Scott Cook, the chairman of Intuit and famous Silicon Valley Luminary, he met Evan while he was at Stanford. He hired him immediately to help work on a product that he thought was super important at Intuit. He does have a lot of talent. And that is on display.
in the S1. I mean, you read the product section and like Ben was saying, I mean, it's some of the most clear thinking, really compelling understanding of users and problems and why Snap's product, why the products are built the way they are. Totally. And we should also call out, they talk about, they don't really in the S1 talk about Evan Spiegel as the product genius. That's sort of like the hint, hint, hint, nudge, nudge and like the way that the media has sort of spun this. But they talk about, you know, Snap is an innovation company and that we as a company have done these things and they definitely don't refer to him as like a once in a lifetime product genius.
But that's clearly what they want to imply. Yeah, yeah. And, you know, they have an Apple-esque secrecy about them, but it would be really interesting, and we'll probably hear this in the ensuing decade from folks that have left Snapchat to kind of talk about, you know, what is the product development process there, and how does it sort of all come from the top, or are there a lot of trusted lieutenants? And I do know from just kind of talking to a couple folks there that they do the kind of old-school Microsoft-style thing of having internal... teams that compete. So it's actually the same way Apple sort of did too, with two different teams working on the iPhone at the same time, where a vision is laid out and there are two people working in secret that don't know what the other person is working on, kind of leading very small teams that are seeing who can better fulfill that vision. And often you don't necessarily know that there's another person working on the same thing that you're working on, but there's definitely this notion of what we're doing requires a lot of creativity and a lot of invention and a lot of newness, and that comes from multiple people exploring different incarnations of the same vision.
Yep. So that's snaps narrative here. You know, one, we're a camera company. We're not a social network. Two, we're a brand advertising business. We're attacking TV. We're not attacking Facebook and Google. Three, we as a company and our founder, you know, co-founder Evan. And actually, you know, if you watch the Red Show video, Bobby Murphy, the CTO and co-founder is super elevated in that as well. So it's wrong to say just Evan. But Evan and Bobby are, you know, this team is once in a generation. You know, we are the next, you know, Apple and Steve Jobs here. That's the snap narrative. So let's talk about.
the investor narrative, the media and the investor narrative. And actually taking a quick pause, I never even, you know, we were laying out the structure of this episode and I'm formulating my thoughts. I didn't really realize that the picture they're, they're painting by taking these little, you know, we're product innovators and we respect your privacy and we're a camera company and we're not a software. Like all these things are like, we're the next Apple, like compass against Apple. Don't compass against Twitter. Yep, exactly. There's just one problem with that. And that's that Snapchat is a advertising based business, not a consumer products business, at least today.
which is the perfect lead-in into what the slightly more skeptical investor narrative is. And point number one here, which anybody who's been following the story is will be unsurprising, is, hey, Snapchat has a growth problem, a user growth problem, and that problem's name is Instagram. Yeah, yeah. And there's a pretty interesting graph of their user growth that looks a lot like an S-curve, like kind of slower in the beginning of 2014, speeds up, you get a nice steep slope till about. uh, what Q2 of 2016. And then you have like three, three quarters in a row of kind of like leveling off. And that really aligns, uh, kind of coincidentally with, uh, uh, the, um, Instagram stories. Yeah, exactly. And that's why, you know, it says like, Hey, Snapchat invented this format and we, we are taking this format and we are bringing it to our network because we, uh, the Facebook universe is the dominant social network. And yeah, Snapchat will tell you they're a camera company, but like.
You share your pictures with your friends, and we are the friends company. Yeah, and it's interesting to give a little bit more context, too. So Snapchat has, what, like 160 million active users? So Snap has 158 million daily active users. And when you look at that, it totally pales in comparison to Instagram and Facebook proper. But the important delineation there is that...
it's basically domestic versus international. Snapchat's got real good saturation in the US. They have very, very little adoption in other countries. And not only do they not have great adoption, but they're not monetizing well elsewhere anywhere. Well, and here's where, yes, very true, but this is where the rubber really hits the road.
In since Instagram launched Instagram stories to compete much more directly with Snapchat product wise in August 2016. From the quarter before then until now, Instagram has added 100 million daily active users. They went from 300 million to 400 million in seven months, which is an acceleration of their growth, a huge acceleration. In that same time, Snapchat is flatlined. They added.
15 million DAU in the same period, which is much lower growth than they had earlier than that. So this is not a good narrative for Snap. Yeah. And so then the question is, if you start to think about sort of what each of these companies has going for them, Facebook and Instagram have a structural advantage where they can buy their time and weight and know that they have great teams that can implement these features in an appropriate way for those platforms and then get those insane 100 million DAU spikes like that by figuring out the right way to incorporate that mechanic into their product. What Snapchat has going for them is they fundamentally believe that or I guess to invest in Snapchat right now, and we can revisit this later in the conclusion, you have to believe that Snapchat can do things that are more innovative and more interesting in a product sense for new users than Facebook will be able to leverage their structural advantage in the industry and copy.
And so what that sort of comes down to is can because I don't think there's necessarily like a time window advantage. Let's say Facebook copies everything three months or six months after after Snapchat. I don't think that Snapchat is going to have this advantage of like they're going to get out ahead and they're going to they're going to get enough users in that short window. I don't think that's going to happen. I think the thing you have to believe is that Snapchat can figure out a thing to do that gets a whole bunch of new daily active users that Facebook is not in the position to copy that having that existing network and those existing products doesn't give them the leverage to to keep building these roadblocks for Snapchat. Well, and this for me is really.
you know in our uh in our episode uh that actually is going to come out after this but that we recorded um recorded earlier this week with with our crossover episode with the internet history podcast coming out next week uh thank you brian that was a blast um but i talked about how in the uber dd episode we did with brad stone this episode and and that that one that's coming out next week really has made me think about competition and moats um and man does facebook and the facebook universe the facebook app universe including instagram they have this enormous moat. If you think about this as a competition between social networks, Facebook is the social network. They have it. It exists. And then you look at where is Snapchat's core user base. It's in preteens and then teens who were building their social graph online for the first time. And they could build that on Snap. But Facebook has literally the entire existing world. So Snap can go after the young folks. And they have certainly made inroads and Facebook is definitely paying attention.
but Facebook and Instagram have everybody that they can bring, they can bring a gun to a knife fight. Yeah. And then that, I continue to think like, will Snapchat be able to come up with something where that's actually not an advantage where like, exactly. There's, imagine like there's a battle in a Canyon and there's the, you know, incumbent that's got a hundred thousand soldiers that are all blocking the middle of the Canyon. Is there something where like, you know, Snapchat can get up on the side of the Canyon and tiptoe along and even like waltz past all them and they can't do anything about it because they can't get up the Canyon. Like, is there another dimension here other than
tons of users that are already using that app on their phone that is just going to completely blindside Facebook. Is it new hardware that they're not on? It's hard to imagine what these things could be, but the dollars into Snapchat, I think, have to be a bet that they will figure that out. Yep. And I think this gets at the heart of what Snapchat is trying to say, which is we're a camera company. And to be a bull on Snapchat right now, you have to believe that they are going to...
basically pivot the market into a dimension that Facebook can't compete with them on. And they are doing that. They have lenses. Facebook and Instagram can't match them on that. The technology is fundamentally better and different with Snapchat. But when you start thinking, where does that play out? Does that lead us into augmented reality? Well, of course, Facebook has Oculus. But I would also say they have stumbled a bit.
So it is a much more even playing field there. But I think that's the bet you have to make if you're going to bet on Snapchat right now, that they're going to outrun Facebook into this new paradigm. Yeah. And perhaps, you know, one of the things or actually the criteria that we evaluate if an IPO was successful or not, which we actually we won't be able to fully do on this episode since it's so recent. But what did that capital infusion in this case, the three point four?
$3.4 billion that they raised from selling those shares, what does that capital infusion allow the company to do that they wouldn't have been able to do otherwise? Did they effectively use IPO-ing as a vehicle to raise capital to go do something new as a company? And maybe it's to do new hardware stuff. Maybe it's to figure out what that next frontier is. Well, they've already shown they think of themselves as a hardware company. Right, right. I think actually now they're selling, it's not just the vending machines with Spectacles. I think they sort of quietly stood that up online and you can order them and have them shipped now. I think that's right.
So that's we've rattled on that, but really quickly to cover and then wrap up on narratives. There are two other aspects to the sort of press narrative about Snapchat right now. One is that Snap has an infrastructure problem and they've came out as part of the IPO that they've agreed to pay Google. They primarily run on Google Cloud Engine, $2 billion over the next five years. They're also paying Amazon and AWS another billion dollars to supplement that with AWS. And as a result of all this spending relative to the still large and impressive, but.
minor revenue they have compared to Instagram and Facebook, Snapchat's actually gross margin negative or was until very recently. So their infrastructure costs were higher than the revenue they were making from advertising. That's before even paying any of their payroll costs or their hardware costs. Yeah. And in fact, the losses are so huge. This may actually be the first company to file for an IPO that has a cost of revenue alone higher than revenue in the trailing 12 months before IPO. We've joked on the Uber Didi episode about ride sharing going gross margin negative. Well, Snapchat is gross margin negative as well, or was until very recently. And it's almost entirely due to infrastructure costs.
A second cost there is RevShare to publisher partners. But I mean, the cost of revenue in 2016 was $452 million. So a large amount of that, I mean, if you figure out how much they're paying to Google year over year, a lot of that is for the Google Cloud infrastructure. And I think the way that Snap wants you to view this is we are paying a lot of money to stay nimble right now. People that are pushing back on Snap would say, number one, why don't you have your own infrastructure to buy now? Why don't you invest in your own data centers? Number two, how the heck are you using so much compute?
in google's data centers like why why is it so expensive on a on a compute per user basis and i think it's it's just you know that the nature of all this really advanced uh augmented reality stuff that they're doing completely on the fly lenses yep well i think it's a combination of lenses and the fact that they are um delivering and storing just an enormous amount of it's not photos it's video on snap um i mean the bandwidth costs are enormous yeah and the the The thing you have to wonder is, and also the thing you would have to believe as an investor to want to do this, is does paying a ton for Google to handle their infrastructure and keep that completely outsourced allow them to try things faster, which is the true kind of inherent value of the company, is that they can experiment, get things right, and roll out really good products quickly. Do you believe that? And do you believe that it's worth all these computationally expensive things that they're doing on a per-user basis? Because the cloud costs, it's not like those are fixed and that it'll be amortized by all these users coming on. That scales linearly with users, yeah.
Yeah, so number one, I think you have to say, is it worth it to be paying that on a per user basis? Number two, should they be paying that premium to keep it outside the company so they can move? Yep. And then, so that's the, that's the second part of the press narrative. And then the third part is, um, you know, actually I think, and when you look at how the IPO performed, uh, when it, you know, priced above the range and then traded up and had a 44% pop yesterday and it's trading up again on day two. I think the third part of the, um, world at large narrative is that yes, despite those problems, um, Snapchat and Evan and Bobby really are fundamental product geniuses. Um, and they deserve the credit that they are lavishing on themselves in the IPO.
But but I think the market has shown over the last two days that they're willing to give Snapchat a pass for now, but they better deliver soon. Yeah, sure. I mean, the frenzy and the excitement that I'm attributing all of the oversubscribed nature of the IPO, the pop and trading, the pop the next day. Like, we just haven't had a big IPO in tech since Twitter. Like, I think this is really, you know, this is a great stat. The 15 US-based tech companies that went public in 2016 raised a total of $1.44 billion and Snap raised $3.4 billion. Like, it was the first social media IPO since 2013 in Twitter. It's the first tech IPO of 2017. There's incredible pent-up demand. So, I'm going to...
I'm going to evaluate the massive volume of people buying shares at pent-up demand. But I think... But I think the rationale that you have to believe to buy those shares is that this is a special company. And if you just look at the numbers and you compare it to... And if you think it's a social network and you compare it to Facebook and Instagram, it's not a special company. It's actually a pretty bad one. And here's the craziest thing, too. They're gross market margin negative. We're making bets on the people.
theoretically coming up with future products that haven't been invented yet. And we're buying on a story. And that to me doesn't sound like an initial public offering. It sounds like a seed deck. Like it sounds like if I'm an adventure firm, those are the things that I look for, like team, like product sensibilities. Like these are the things that I would write a, you know, one or $2 million check for, for somebody that hasn't built anything yet. Not the sort of ways in which I would be evaluating a public security. That's such a good point. And I think, man, thinking about this this way, I think nothing better encapsulates the time in which we're living in tech where an IPO prospectus,
and process looks like a seed deck and a seed process. I don't know if that's a good thing or a bad thing. That is the reality in which we live today. I'm getting all worked up over here. And I don't, I actually, I agree with you. Like, even though it was gross margin. I want to just highlight this. This company was gross margin negative. That means they were selling dollars for 50 cents or 90 cents or whatever until like a couple months ago. And they are now a, you know, 35 billion plus market cap public company. Yeah. And it's not just like Twitter where they weren't.
profitable because of their massive operations and then actually twitter never became like going public without being net income positive is a common thing yeah but going public while being gross margin negative is a very uncommon thing yeah yeah david i uh if you have any dollars to sell me i got i got 50 cents for you and then go all day long i am a bc anyway so the point of all this we've spent a long time on this section and listeners let us know what you think of it but i think what's just so fascinating about this event and this company is you can paint it as Snapchat has very effectively as this is the future. Um, and this is the most compelling, most interesting, you know, company to hit the public markets since Facebook. Um, and that we are writing a very different wave than Facebook. Um, or you can paint it as like, this is the beginning of the end here. Um, and, and both the moment that we're at right now is just so interesting because there are great arguments on both sides. Yeah. And I think it, the best way to summarize it is this is the public market sitting down with Evan Spiegel at a table, looking him in the eye and saying, and Evan's saying to public investors, do you trust me?
Exactly. And, you know, going back to the start of the show, you know, Evan getting this this bonus, this huge bonus, you know, almost more than six hundred million dollars in stock grants for a successful IPO. You know, it's really coming down to to that. Yep. Yep. Yep. All right, listeners. Now is a great time to talk about one of our favorite companies, Legora, the agentic operating system for legal work. Yes. Most of you have dropped a contract into a chatbot by now. But as a lawyer.
How far can that really take you? It's never seen your firm's precedents. It doesn't respect confidentiality, and you can't check where its answer came from. So Lagora's founders approached this the way that great founders do. Early on, the team moved into the office of a big law firm in Stockholm and learned, for months, how the work actually gets done. A couple of thousands of enterprise customers and 100,000 users later, they still work that way. They employ 100 legal engineers on staff. These are lawyers sitting inside of firms and legal departments to deploy Lagora onto live situations like the deal closing this week or the policy review due Friday.
The product has gotten very powerful in a short period of time. A year ago, the goal was a good answer from a chatbot. With a Legora agent, you hand it the work and it comes back with a plan. Tasks like running diligence on a data room or reviewing a new vendor contract get completed inside the tool you use every day, like Microsoft Word, and against your own precedents and playbooks. Every finding is sourced, the lawyer directs the work and signs off before the system executes any steps. Every legal team can get access to the same AI models, so the models themselves do not give you an edge. What you can do with your own data, people, playbooks, that's the whole game.
Today, over 100,000 legal professionals at more than 1,800 law firms and in-house legal teams in over 50 markets use Legora. And when Legora goes head-to-head with its top competitor in a pilot, it wins 70% of the time. A demo is one thing, but what matters most is an associate who reaches for it at 2 in the morning during a closing or whether a general counsel trusts what it says before the board meeting. So if your legal team wants to check it out, whether you're at a firm or in-house, go to legora.com slash acquired and be sure to tell them that Ben and David sent you. All right. Should we move on quickly to the rest of the show? Do what would have happened otherwise? Yeah. Yeah. So I mean, the thing I'm sitting here wondering is, do they have to go out now? Could they continue to fund their operations by what they had in the bank, raising more private money? Is it advantageous for them to go out now? We'd love to hear your thoughts on that. They had no choice. I mean, they were burning money. I think, where did I put the, I had the numbers in my notes.
I don't have them offhand, but I think Snap had, even after the huge amount of money they just raised in the private markets, like less than a year ago, they had just about a billion dollars in cash on hand. And they burned free cash flow of almost, I believe, $700 million last year. And that's, I'm sure, going to be even larger this year. So like they were going to be out of cash if they didn't get this capital infusion, one. But two, also, I think like we've talked about, like this was their opportunity and this was the time for them to tell their story. Yep. Yep.
I guess the name of the section is what would have happened otherwise. So we have to sort of explore other options. Could they have been acquired? And who would have acquired them at this point? They're 10 times more valuable than the last time Facebook tried to acquire them. But I mean, for what they dumped on WhatsApp, let's say it's the standard public market 40% premium.
I think what was it? They went out at a $24 billion market cap. So, you know, would what, like 33, 34, 35, would Facebook have paid that much for them? And would they have accepted it? I don't know. I mean, we ended our last Snapchat episode with, you know, I was arguing that we were asking the question, should Facebook have offered more to try and buy Snapchat back in 2013? And I argued no, because just the vision and the culture of Snapchat and their vision of their product is just anathema to what Facebook is. And we've seen that play out even more so now. I mean, Facebook, they have Instagram, they have Instagram stories. That's doing great. Instagram's growing faster than ever. Why would they pay $35 billion for Snapchat right now?
Yeah, yeah, yeah, yeah. They have Oculus. Yeah, yeah. Let me throw out another hypothetical feature for you, and this could still happen. So this is not somebody buying Snapchat, but rather the reverse. So we live in a world where Twitter, or I'm sorry, Google and Facebook are the vast majority of social network-based advertising that's being bought. And they're totally eating into all programmatic and display also. They're mega giants. And Facebook gets these economies of scale for their advertisers by...
adding additional networks into the portal. So they have channeled these advertisers. The advertisers are used to buying ads on Facebook. They buy Instagram and then suddenly, bam. Now I can also just upload a different image size and advertise on Instagram too. So what if Snapchat's way of getting into that competition is starting to aggregate anyone that's left? So, you know, right now Twitter is valued at $11 billion. Their market cap's 11 billion. And that's probably too high. Like if that was lower, then somebody would probably actually pick them up. But right now they're kind of priced too high for anybody to feel good about that purchase. If they continue to topple,
Snapchat's got new money in the bank. They've got this really high market cap where they could do a stock deal. What if Snapchat bought Twitter and then enabled advertisers to have a single portal to buy advertisements on both platforms and then sort of went on a spree? It feels completely antithetical to me to Snapchat's DNA. And perhaps there actually is no economies of scale since those ad formats are so different. But it sure paints an interesting picture of what could Snapchat start to do with this cash they've just raised and this concrete public market validated valuation. Yeah, actually, that's really interesting.
I think another interesting question is, what if it's not Twitter, but what if it's Fox? Or what if it's a television media company that Snapchat would buy? Well, they've got that relationship with Viacom. I don't know if that still exists, but Viacom was, I think they might have dissolved that, but Viacom was their channel sales for a while for all the Snapchat ads. Yeah. I mean, and Snapchat is, they are an LA-based company. You know, the chairman of the board is, I believe it's, is it Michael Litton, I think, who was the Sony Entertainment CEO. You know, that is, in many ways, Hollywood and media and television is as core to Snapchat's DNA as Silicon Valley and tech is. Totally. Totally. And the one other, before we move into tech themes, and this is probably, this is right on the border of what would have happened otherwise in tech themes. Is there a...
was this the right way for Snap to go out and did it get them the right investors? So what I mean by that is, you know, Snap's a company that even more so than any of these other tech companies is going to potentially have a real tough time with these quarterly earnings. And if they got themselves a bunch of retail investors that were short term and excited for the pop and got in because there was all this like excitement and demand and they didn't get these long term investors like that. Here's the here's the counter example. Amazon was extremely clear in their S1 and somehow built this incredible investor base who was willing to wait decades for them to start being profitable.
Yeah, it's that great line that Tom said on our episode of, you know, that Jeff always says you get the investors you asked for. Yep, yep. And big question for me here is, did Snapchat ask for the right investors? Did they get the right investors? And will they be able to stand up to the scrutiny of quarterly earnings calls for those investors? But here's where it comes back, though, to the beginning of the show. You know, the investors they got, what do they not have? They have no say in the company whatsoever. That's right.
huh so does it matter well i mean it matters in the sense that like their share price would like well yes of course they have a say in the share price but snap just raised all this money that they can use to fund all the product development for the next you know at least couple years um they have this room to run honestly they just raised their they basically raised yeah right oh yeah for their uh for their next wave that they're tackling yeah um interesting questions um so we move on to tech themes yeah let's do it So we'll be quick here since we spent so much time on and I feel like covered a lot of this on the rest of the show. But for me, I mean, the biggest one here thinking about all this was just, you know, what we've talked about so much on the show of waves and technology waves and thinking about how Snap very clearly, despite what they're saying in their S1, you know, they started with the mobile wave and they were a social network on mobile. But the future of Snap, if it will be the one that they want, is going to be them riding a very different wave.
And I'm just reminded of two things. One, the Facebook story and our Facebook IPO episode and how Facebook was riding the Web 2.0 wave and then realized through the IPO process that they needed to paddle over and conquer the mobile wave. And I wonder, it seems to me very clear that something similar is going on with Snap right now. Yeah. And are they paddling over into the AR wave? Is that what you're...
well whether it's ar or or you know i don't know how yet how we're going to characterize this wave but it is um it is uh well it's it's you know i think snap says it really well it's the camera wave you know it is um when a camera becomes about uh inserting technology into the world around you yeah yeah That's interesting. Most of my tech themes we've covered, you know, a lot of like winner take all network effects and the ability to copy well, cord cutting, moving from TV to mobile, F virality, how it's the anti-Facebook, you can really be yourself. But the one that we haven't really touched yet is that the viral coefficient of Snapchat is different than the more successful social experiences like Facebook. And they're, to me, a big risk factor is that they're Key product pro is also potentially their key business con, where on Facebook and LinkedIn and Twitter, it's a follower grab. I am directly incentivized to have a wider audience because the way that you use those platforms is to try to get as much engagement as you can on those.
those platforms like it's it's it's called social media because it's truly media it's you speaking to an audience and people engage with you but it's more media than communication and with snapchat being more communication and the way i use snapchat is there's like five to ten friends that um i have a that i snap with at all and that happens in kind of a power law distributed way where like maybe that's not exactly the right mathematical distribution but like there's one person that i snap with the most then a few other people they're kind of and then the rest of those those ten are not that much and so the reason why i think their product has such high engagement but like the issues that we're talking about are in growth are the fact that the product itself lends itself really well to engaging a bunch with a very small set of users, which isn't great for growing into new markets. So as we start to think about the network effect here, like the fact that there's a ton of people in North America using it and some people in other markets using it, it doesn't necessarily mean that it's going to catch on in Belarus because there's nobody in Belarus that has somebody that wants to snap them somewhere else because it's all about these small pockets. And yeah, it's and it's interesting. You're seeing apps like like Snow, which I believe.
It's no part of line, I think. It's a Chinese Snapchat. I think it's either Japanese or South Korean. But anyway, it's that. It's the Asian Snapchat. It's a really good point. It reminds me of the Uber versus Airbnb. Airbnb has a very clear global network effect. Because people travel. Uber not so much. Is something similar happening here? Yeah, totally.
We talked about that with Brad Stone listeners on the previous episode. And Brad made this great point that Airbnb actually has a stronger global network effect than Uber does because with Airbnb, you're traveling to all these places. You're bringing Airbnb to new places. You're looking for Airbnb in new places. And with Uber, other than the technology being hard, there's not as much of a network effect moat because how hard is it really to download whatever the version of Uber is in another city? And that's why we're seeing all these clones get so much traction. Yeah. And maybe I'll pile on with one more real quick tech theme. But while we're talking, that episode with Brad too was just, it was such a treat to have him on.
can't recommend it enough to listeners. Um, but, uh, one of the concepts he talked about was that like, uh, there was this idea in ride sharing that raising capital was a moat and an advantage and it turned out not to be. Um, and looking at Snapchat, like it made me think about that as well. Like, um, Snap has raised so much money and now with the IPO, even more money. Um, but they're still, you know, they were gross margin negative. Um, you know, that hasn't helped them build a great business thus far. Yep.
Yep. Yep. All right. Should we grade it? Cool. All right. Let's grade this sucker. Cool. So listeners, we should again clarify that we are grading on the criteria of what will this move allow them to do? Like, was the IPO a good move? And did the idea of doing this IPO, number one, was it well executed? Number two, does it put them in a good position?
I have to set aside a lot of my feelings of the company in general. If I feel like they're set up for success and they're not way ahead of their skis in terms of the... Well, actually, I guess they're related because the fact that they've got a market cap that is so ahead of revenue is totally tied into this. But I guess the point I'm making is... if they were going to IPO and they needed to IPO, they did it extremely well. Like I am an A on execution on this thing so far a day in and, uh, and their ability to raise the capital that they, you know, fight or flight do or die needed to raise and do it at least so far really well. And I think that that's an A with like a ridiculous amount of variance. I thought about, you know, they've never talked about before the show. Like, should we even grade it? I mean, I think that it's, it's too early to tell, but, um, an A on execution and a on the, what it sets them up to do in the future of staying nimble, potentially making interesting acquisitions. Um,
I don't know actually how this will help them grow into new markets. I think that's still the biggest, scariest thing for me. But in terms of how to go raise money and the way that best set them up for success, this is an A. Yeah, well, and I think the... The parallels to our Facebook IPO episode are just so great right now, are so perfect and so apt. We graded the Facebook IPO, and I think we gave it two grades, a grade for the actual IPO itself, and then a grade for how that event influenced the trajectory of the company over time. And the IPO was terrible. But what we learned from that story was that experience really made Facebook what it is today. It kind of drove them to much further greatness.
I completely agree with you. Like this, this IPO was brilliantly executed by Snap. You know, they told their story so well and positioned themselves perfectly. You know, one need only look at how the performance has gone over the last two days. Granted, it's still very early, but versus Facebook's first two days. But the question and the real grade that matters, you know, we're going to have to come back for at least, you know, round three, if not four and five down the road on this one. Yep. Yep. Yep.
I totally agree. I almost feel silly for giving it an A. There's just so much variance and so much we don't know. Well, but I think we can definitely create execution on the IPO. And no question, this was an A. There were huge headwinds here with Instagram stories launching and growth slowing and being gross margin negative. And they've spun this great story about Snap as a camera company, Snap as a brand advertising company, Snap as the most innovative and interesting product company of our generation. And it's worked really well.
Totally. Totally. Before we move on to carve-outs, I have a couple little kind of fun points to note about this IPO. One is that there's a great Chris Saka tweet from yesterday where he points out that he's like, congratulations to Snapchat, but guess who's not celebrating and making a big from this IPO? And he goes, me, the guy that didn't answer this email. And he has this email that he just has unanswered in his inbox from Bobby in 2013, 2014, 2012. Yeah, saying, hey, really enjoyed your talk. Would love to have you in the office and chat. And yeah, it's a reminder of what a crapshoot seed stage investing is.
Totally. We'll put a link to that in the show notes. And then another one is really interestingly, so you get this sort of 24-hour window to go and talk publicly about all your financial stuff after your IPO before you start being really held to all the SEC regulations about what you're disclosing and when. And normally you see all these execs taking advantage of this going on all these different shows and talking to media outlets on the day their IPO drumming up support for it. Spiegel and all the other execs weren't anywhere to be found. They headed over to Goldman Sachs, which is one of their IPO managers. And it wasn't their lead left because Morgan Stanley led the IPO. And they hung out there for the day. And they did one interview with the LA Times to kind of promote the LA startup ecosystem. And it's just like Snapchat going to be Snapchat. They don't do things the way everyone else does things. I think if there's one lesson from the whole all of Snapchat story thus far is exactly that. Yep.
Cool. Should we move into CarVets? Let's do it. All right. So listeners are required. We have done three episodes this week. We did the episode with Brad Stone. We've got this one. And then shortly hereafter, we'll have a super cool episode with Brian McCullough from the Internet History Podcast as a crossover. So I have not been doing as much reading as I'd like to this week. But I did listen to Ben Thompson on the Bill Simmons podcast. And I haven't listened to the Bill Simmons podcast in a while. It's so freaking good.
there's it's largely about sports so if you don't like sports most episodes won't apply to you but uh number one the episode with ben is great he compares uh bill bill has these incredible sports analogies so he compares like twitter twitter's like the milwaukee bucks of tech companies and they have like this great analysis of that and uh and and it's just so what's that what's snapchat uh i don't know i don't think they got there it's either the cabs of the warriors or maybe it's the team that will dethrone one of them i don't really know yeah it's uh Instagram and Snapchat, you know, who's the Cavs and who's the Warriors? Right, right. But that episode's great. Malcolm Gladwell was on a few episodes back. That was really great. And he's just such an enjoyable personality to listen to. And I feel like, honestly, David and I, as podcasters, are always looking for who's producing really great content and how they're doing it and things we can add to this show. So I know that I've definitely taken a page from Bill's book.
Yeah. Mine, I'll do real quick, but it's apt. I started listening to Sun Tzu's The Art of War this week on audiobook, and I finished it because it's incredibly short, which I'd forgotten. I'd read it a long, long time ago. Oh, that's so appropriate for Snapchat. So appropriate because as we talked about on the last episode, after Zuck came down to LA, and I can't remember if it was when he offered to buy Snapchat or when he said, hey, we're going to launch Poke and we're going to crush you. I think it was the first time when he said, yeah, we're going to launch Poke, we're going to crush you. Evan went out and he bought.
copies of the art of war and he gave them to each one of his employees. And, uh, um, but it's such a good book and, and, uh, um, you know, applicable as, as many people, many much ink has been spilled to business and so many other things in life. But, um, but the coolest thing about it, and I think what, um, you know, doesn't, uh, a lot of people don't appreciate about it is that, um, the, the book is about not fighting and that the idea that the, um, the best victory that you can achieve is is a whole victory where you don't destroy the other side you capture the other side um and and that uh actually fighting and actually entering entering into battle is terrible because you're you know even if you win you're you're damaging what you want to capture um and you're sustaining you know damage yourself um and i think it's just so apt for when you think about how snap has played this whole, you know, in the past couple of years, really, but this whole IPO process, we're not going to fight Facebook directly. You know, we're not a social network. We're a camera company. Like it's got Sun Tzu's fingerprints all over it. Love it. It's perfect.
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