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I bought SNAP this morning. I’m thinking this through and so this write-up is my “thinking this through thoughts”. I’m not 100% sold on the idea, but it makes some sense, enough to take a starter position. Here’s why.

First, this has nothing directly to do with the news of that the US government is set to hold a press conference on a “significant national security matter”. I was going to take a position in SNAP this week, I had made up my mind this weekend.

I’ve heard a couple of people on Twitter speculating that this might have to do with TikTok. Of course I have no idea if this is the case. But it wouldn’t surprise me.

Forbes had this article on Friday about TikTok planning to spy on US citizens.

While I don’t know if the announcement today will have anything to do with that, I just can’t see the US/EU letting TikTok sit on everyone’s phone given what is going on in China, especially if we see escalation now that Xi is ensconced in power.

Meanwhile SNAP had another shit quarter. That makes it 3 shit quarters in a row.

But here’s the thing. This isn’t some dying brand. SNAP saw MAU (monthly active users) grow 19% YoY.

SNAP already has 100 million users in North America. So no surprise their growth there is slowing. But ROW growth is up 34% YoY.

This app is becoming more ubiquitous, not less.

What hurts SNAP is that they aren’t making money off those users. Their ARPU (average revenue per user) in Q3 dropped considerably YoY and QoQ.

But you know, I don’t think that is all that surprising. First, ARPU in the US was only down 1%, while EU was down 5% and ROW was down 9%. So how much of this is currency? Second, SNAP is kinda being hit by the perfect storm of negative events.

SNAP ARPU in the US is close to on par with META average ARPU ($8-$9/MAU). In ROW though, SNAP only gets $1/MAU.

We’ve got the end of stay at home, so kids (especially high school and university kids) are probably not engaging as much. We’ve got the Apple IDFA changes – these were purportedly privacy changes Apple made that made it more difficult to get personal info from users and thus more difficult to target ads, and of course you have the TikTok phenom.

The back to school/work comps will pass. The IDFA stuff will also lap next year, and like these guys on the all-in podcast say (they also have a good discussion of some of the negatives at SNAP), Apple’s real goal here is not to protect our privacy but to build their own ad network, something they are doing and getting better at, which is going to help ad revenue. And TikTok – well we’ll see, but I honestly don’t get it. The US is stopping semi-conductor companies from working in China, it is blocking IP from going to China but it is going to let us give all our phone data to TikTok?

SNAP could obviously keep going down. If the trend holds the stock will do not much for the next 3 months and then drop 30% on the next earnings report. I kid… I hope.

At this price SNAP is a $12.5 billion company, which is down from being a $100b company a year ago. It is slightly cash flow positive, it has 360mm active users. You are paying $35 per user. When I look at other platforms like RBLX, META, SPOT, on a per user basis this seems roughly fairly priced to me. I don’t think SNAP is screaming cheap.

But I’m saying that on the “snapshot” of where we are now. I think there are a bunch of things that could go right from here.

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