Over the weekend, we read SNAP's S-1 and were struck by its contrasts to FB. In this note, we include some high-level distinctions. A key distinction between FB and SNAP at IPO date is that FB reported positive 27% net income margins in the year before going public while SNAP lost $520mm (up 36% y/y). However, SNAP is growing revenue much faster at 589% y/y vs FB's 88% y/y revenue growth the year before its IPO.
We were most intrigued by SNAP's words: "Many of our products are data intensive and work better on high-end mobile devices" and "our products often use technologies that demand a lot of processing power" and therefore "our users tend to be located in markets with high-end mobile devices and high-speed cellular internet." FB's broader approach suggests a longer growth runway and upside revenue potential from all countries globally.
Although we use both SNAP and FB, we admit that we are not the target demographic for either. The analysis below is based on documents from each company, to avoid bias. In the analysis below "FB" refers to the investable entity that owns Facebook.com, Instagram, WhatsApp, and Messenger. Facebook.com refers to the site alone. All words in quotations below come from SNAP's S-1.
• What. Both SNAP and FB are social networks, where communication is facilitated by sharing. SNAP communication/sharing is built on photos and videos (up to 10-seconds long) shared with friends selected 1 at a time, or to groups via My Stories. FB's Messenger and WhatsApp are typically 1 to 1 communication via text, while Facebook.com and Instagram are built on sharing text, photos and/or videos with groups of friends.
• Mission. "SNAP is a camera company…Our products empower people to express themselves, live in the moment, learn about the world, and have fun together." This is a far narrower than (i.e., a subset of) FB's mission to make the world more open and connected.
• Philosophy. SNAP: "The camera screen will be the starting point for most products on smartphones". Facebook.com is moving toward video-first, while Instagram.com has a photo-first strategy. We believe video (live, user generated and premium) will be bigger than camera stills.
• Permanence. SNAP invented "deletion by default", where photos and videos are deleted automatically from SNAP's servers after being viewed by the recipient. Text, photos, and videos are generally not auto-deleted from FB's sites (other than WhatsApp). By implication, Snaps are more urgent, more day-to-day living, and more frequent - users do an average of 16 Snaps each day (2.5B/158mm users) and the average user "visits >18x/day". By contrast, Facebook.com and Instagram users share moments that matter most, because they survive longer.
• Stories. SNAP created My Story in Oct. 2013. Stories are "collections of Snaps viewed in chronological order that expire within 24 hours". Today, "25% of SNAP's DAUs post Snaps to Stories every day". In August 2016, Instagram Stories was introduced: It is an unapologetic duplicate of SNAP's Stories product.
• Engagement. SNAP: "Daily Active Users (DAU's) spend 25-30 minutes on Snapchat every day." and "60% of DAUs create Snaps every day" and "users use Creative Tools on 60% of Snaps every day" and "60% of DAUs use our [text] Chat Service every day". FB's average daily usage is >50 minutes per day, worldwide.
• Demographics. SNAP: "36% of our U.S. DAUs were 18-24 at 12/31/16, 27% were 25-34, and 22% were 13-17", implying 15% other. FB has stated that, in the US, over 90% of the 150 million users on Instagram are under the age of 35, and that of US Facebook.com users, 87% of 18-29 year olds, 73% of 30-49 year olds, 63% of 50-64-year-old and 56% of users are over 65 years old.
• Business Model. According to IDC, the top ten advertising markets command 70% (about $9 trillion) of overall advertising spending and 85% ($5 trillion) of mobile ad spending. SNAP: "60% of our DAUs come from countries on this list, including 60mm DAUs in the United States and Canada, and 10mm DAUs in the United Kingdom" and "substantially all our revenue comes from advertising."
• Global Diversification. SNAP: "30% of 158mm DAUs are outside the US". Of FB's 1.2B DAUs at 12/31/16, FB had 180mm daily users in the US, 262mm in Europe, 396mm in Asia-Pacific, and 388mm in Rest of World. Daily users were 66% of monthly users, flat for the past 4 quarters, and up 1% annually in each of 2014 and 2015.
• Scale. SNAP has "158mm users creating 2.5B snaps every day" (i.e., about 16/day). FB owns Instagram (400mm DAUs), WhatsApp (1B users), Facebook Messenger (800mm users) and Facebook.com (1.2B daily active users of which 1.1B were mobile users, and 1.9B monthly active users of which 1.7B were mobile users in December 2016).
• Mobile. SNAP has 100% mobile and FB has 95% mobile usage. Monetization from mobile devices represents 100% of SNAP's revenue and 84% of FB's revenue. "IDC projects that worldwide advertising spend will grow by 18% [CAGR of 4%] from $652 billion in 2016 to $767 billion in 2020. Mobile advertising…is expected to grow 3x from $66 billion in 2016 to $196 billion in 2020, while all other advertising spend is expected to decrease by approximately $15 billion".
• Location. SNAP: "Our headquarters is in Venice, California, near Los Angeles". FB is headquartered in Menlo Park, deep in the Silicon Valley.
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