Yeah, we bought Snapchat

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It is a great day to be an investor.  There is so much excitement swimming around in the stock market these days with the Trump Rally and what not, but when a popular company goes public it gets even more exciting.  I hate the word exciting, but that is what we are seeing today.

There is a lot of skepticism around IPOs.  A lot of people that I respect are super anti IPO and they think that people should wait until there is a drop, similar to what happened to Facebook.  Now, I have been investing for some time and I was one of the people who actually told people to avoid Facebook when it IPOd.  I look back at my Facebook throwbacks and see how I warned people to stay away when the company went from $54 to $24 and I looked like a genius, until now.  Facebook has made huge strides and they are beginning to rival Google in how they operate and function.  If you bought FB at the IPO you lost but then you went on to triple your money on top of your cost basis.  FB now trades at $136/share.

To understand why I said to beware of FB you have to understand that I was basing my FB recommendation on Myspace.  Myspace went from being a champion of the world to now being long forgotten.  The analysis was that it was only a matter of time before FB did the same.  The problem is that FB and Myspace founders had two different exit strategies.  When Myspace sold they sold to another company, did away with Tom, and that company proceeded to ruin it.  I always talk about the power of founder CEOs and I think that is an area of distinction here because THAT could be one of the reasons the company proceeded to fail.  However, I believe that another is that when you go public there is a certain level of accountability to the market and your investors that FB stepped into and Myspace never had.  Needless to say, my analysis was incomplete.  

I bring this up because a lot of people are basing their SNAP conclusion of waiting for a drop on Facebook which could be another set of incomplete analysis.  This article will discuss why but I wanted to make sure that we emphasis that past performance is not an indicator of future results.  Just because Facebook did it doesn’t mean that is the industry norm.

Another area of distinction, and an example of using past performance, is that people are comparing SNAP to Twitter.  The difference in SNAP and Twitter is that SNAP already learned how to generate ad revenue prior to IPO where twitter waited until well after to figure this out.  That is significant because it allows the market to have a better gauge of the IPO price since there are true financials to tie this number into.  It is possible that Twitter was overvalued at the time of the IPO because it was operating on HOPE not reality.

Another, very importance concept is that the same VC guys, investment banks and analysts that took FB public, took Twitter public and are now taking SNAP public.  I think that at this time they should have a better gauge on things as far as pricing at IPO and whether to take the company public in the first place.  Snapchat is one of many social networks that has stood the test of time.  Therefore it has already been vetted by the market and unlike Vine and Periscope and others, has proven sustainable. This is significant especially if you are betting long term.  You don’t want to buy something that is a fad.

These social network companies are valuable.  They have a great user base and they generate a ton of money through ads.  All the ad revenue these days is going away from tv and being poured into social media.  This is BILLIONS of dollars.  So while the CEO might not think the company will be profitable, those add numbers can and will end up being even better than projected as the market shifts to focus more toward online marketing, that is when money is made.

As stated above, the CEO of SNAP has said he does not see the company ever becoming profitable.  On one hand this is scary, on the other, we have to realize that the market has already priced this idea into the stock…. If the CEO makes a comment the stock price is reflective of that comment.  Therefore, there can still be value in a company, although this is very counter intuitive, that doesn’t actually believe they can make money.

The fact of the matter is that you can throw $1000 into some bottles that will generate Instagram likes or you can buy $1000 worth of Snapchat.  People are so afraid of losing money not realizing that they literally burn money via their lifestyle.  The trips the vacations are all a form of “losing money”.  I would rather use that money with that prospect of losing it all and being back where I started or equal to where I would be had I spent it on the turn up, with the potential of growing rich or learning a valuable lesson.  You don’t lose taking action.  You lose not taking action and then making excuses for why you didn’t.

Be great!

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