SNAP is down 12% (and counting) from the day Spiegel wrote his letter to employees on Sep 28. It's down 50% from when we recommended it as the best stock in the stock market last year. We encourage you (NOW) to read Spiegel's letter carefully as it's important and timely.
It's the best written document by a CEO we've ever seen.
We've seen niftier strategies (O'Leary comes to mind at Ryanair), seen smarter cleverer businessmen (Larry Page), heard better and more memorable CEO talks for sure (Rich Barton), and witnessed nearly flawless execution (Jeff Boyd) and obviously we've seen much bigger success via past-facing execution (Jeff Bezos, Larry Page, Tim Cook, Steve Jobs); BUT, we've never seen a better more effective or visionary missive written by a businessman.
At the very least, even if you viewed his letter negatively...
Do you remember when you were 27 or 28? Did it look anything like where Evan Spiegel is at in life right now?
If this letter were a movie it'd be Jerry MacGuire's MISSION STATEMENT...
Let's just be simple:
If we're wrong on SNAP, consider our careers as a stock-picker over. It would be time to go work in the quarry. In fact, even if we end up right it's already time to go work in the quarry.
From acute demise can come everlasting greatness if you have the vision and the grit. Let's review some examples of true grit...
$AMZN $113 to $6 in 2001
$NFLX $42 to $6 in 2012
$AAPL nearly bankrupt, fired it's guiding light, to #1 company in world history-- worth a trillion and counting.
$GOOG from $370 to $120 in 1 year
Jerry MacGuire is fictional, but it's based on a real life: Jerry goes from one remaining client, "a chip and a chair", to an agency powerhouse.
From sneakers sold from trunks of cars to a global monopoly-- swoosh!
From quarry rock-breaking for minimum wage to most-revered architect
It's how you handle adversity that separates the grizzled heroes (those who do NOT sell their companies when things get tough) from the starry-eyed boys (Elon Musk, Peter Thiel, Instagram founders...etc...).
Gritty vision has never failed in business, for which we're aware. Sure, if there's no business model or profitability angle, but that isn't the case here. Apple came closest to failure bc Jobs was fired and he nearly didn't come back in time, and the company, some say, was even bailed out by its largest rival-- the previous tech Empire formerly known as Microsoft. That one took too much time for certain reasons, but in Snap's case we really don't think it's possible for SNAP to do anything but win, bc they are the only ones with the longest vision in the room, and the grit to handle the inevitable adversity.
We point you to the following positive catalysts, in order of both timing and importance:
#1 Android overhaul.
Should roll out faster during Q4, with possible full distribution in 1H 2019. Should result in IMMEDIATE effects on DAUs.
#2 Lens Community
Lens Studio and Explorer are huge for Snap in the coming years. While the competition can make copies of individual lenses and filters, it will take them time to build a PLATFORM and even longer to attract creatives to that platform. Meanwhile Lenses directly affect DAUs AND revenues.
#3 Casual virtual gaming
This MIGHT be where Snap releases a separate app similar to Bitmoji, but with an eye of merging it once Apple's ecosystem can handle it. We view casual gaming as a massive massive opportunity, and is ideally situated for a company with a strong social contacts lattice like Snap. But it DOES require vision, a vision which competitors have not had.
#4 Snap is an operating system company
We won't go further into this, but just remember you heard it here. Snap is building an operating system for the next wave in computing. While they aren't the only ones attempting this, they are by far the farthest along. We stress that this "operating system" isn't reliant on future wearable technologies either, anymore than Chrome browser is reliant on Microsoft Windows or desktops.
We should take this time, before our recommendation, to mention that Snap's competition IS important, and in this respect we share sentiment with Wall Street. However we take the other side...
This Snap missive comes as FB's CEO has, by contrast, messed up every possible thing you could mess up as a CEO of a business organization.
#1 Multiple security leaks (Grammar Analytica, last week's breach...) for a company entrusted with personal information? These breaches don't just tarnish FB but the entire sector (Twitter, Youtube, Snapchat, etc...)
#2 Ticked-off visionary employees
The founders of FB's (only? we can't say for sure bc Zberg refuses/embarrassed to provide the data) two best GROWING divisions have left in a huff after Zberg has tightened the reigns on them. It reminds us so much of the late George Steinbrenner, when he kept his mitts off the team they won championships, and when he got his hands dirty the team was a failure. We view Zberg and Steinbrenner as birds of a feather. The Instagram founder was just recently written-up as a superhero by the technology business press, just weeks before he left. Zberg has never had any vision, this is why he stole the FB idea from the twins, and overpaid for Instagram and WhatsApp (and many other already-shuttered flash-in-the-pan social media startups). Take a look at the LATEST headlines about a Civil War breaking out inside FB's walls this week, thanks to a certain judge and the support of a close friend of his who works at FB. Awkward.
#3 Politics where none should be
Maybe we're too old school, but keep your politics out of your business. Employees and customers/users don't appreciate it. This seems obvious, but companies like UA FB GOOG NIKE can't seem to help themselves. It's gonna be bad for business over time, we promise you.
#4 Maps copy
We hear PLENTY of digs against Snap that they don't innovate or innovate fast enough. But didn't FB just leak-announce they are copying Snap's maps this week? Too funny. We can't think of ANY examples where innovation leadership failed to result in the proper long-term outcome. Innovation, vision, and the tenacity to make those visions a reality are just too hard to "wing it" or "copy". With each copy, FB gets weaker, sorta like when Samsung kept trying to copy Apple and eventually their phones caught on fire (we mean literally, as in burning folks). Eventually, cutting corners catches up.
Recommendation: 40% of long exposure at today's price. Then just close your eyes and ears like Rip Van Winkle and pay no attention to what you've done until 12 months later-- to re-assess. And we wouldn't be pounding the table TODAY... NOW unless Wall Street had sold off this CEO letter today. Q3 numbers ARE a concern (181mm DAUs?), but at this point we think disaster is quite expected by short-sighted unfiltered-stat-addicted Wall St so ANYTHING they say which is a positive can keep the stock from falling. We're particularly excited by the reactions we see from their Android overhaul "alpha" release-- unanimously favorable with many users getting QUITE excited.
Now we are off to the quarry to crack rocks...
Disclosure: I am/we are long SNAP.