Snapchat took a beating a few days ago when they reported earnings. The company reported a 2.2 billion dollar “loss” and showed that user growth has been slower than estimated. User growth is basically how people measure the success of social media companies. I think this is a silly way of measuring value since users don’t actually pay for the service and because user growth is what counted out Twitter (which is now sprinting back) and Facebook years ago. I would rather a platform have a few quality content producers than a bunch of spammers. Unfortunately this is all analysts have to work with so this is what they use.
The problem with using these metrics and other common ways of measuring companies is that what is being created now is something nobody has ever seen. We are using the limited knowledge we have about something we have never seen to measure and discount what we have never seen. Its like the blind analyzing the blind. As the world evolves, so should our thinking and our analysis.
Ever since the day that SNAP dropped 21% it has risen almost 14%. This is significant because it didn’t go down and stay down. The market is a mixed bag of emotions and in my experience, when something new comes out there are always doubters betting on failure. They do this by shorting the stock and promoting doom and gloom theories. Its easier to bring down success than it is to be successful. It’s easier to be critical than it is to be correct.
I saw this when Tesla first came out and even when Facebook debuted. Both companies IPOd high and then fell off, then they rose again. The people that are now singing both of their praises were no doubt shorting them while they were on the come up. Now that the company is successful and thriving they want to come in and stand on top of it with their flag as if they were Columbus “discovering” America. The problem is that you don’t get rich being late to the party. People might think you are smart but I would rather be rich (getting in early) than look smart to people (getting in late).
Imagine if when Henry Ford came up with the automobile that people still judged his car and the success thereof as it compared to horses. They measured the power of the vehicle and its adoption by how fast people adopted horses even if the market was completely different. People tend to assume that just because something is free that its success is based on how fast people start taking in free stuff. This concept has failed and it doesn’t work. Henry Ford said it himself that if the market had anything to say about it they would have wanted faster horses. Good things take time.
This is the same thing that I have said about the iPad and the iPod. A lot of the times people don’t know what they want until they get it. As an investor it is your job to see what can be in an environment full of cynics. No doubt there were loyal horse owners who bet against the car just like oil companies bet against electric vehicles. But they lost and are losing, bigly. If you bought when everyone hated it then you made money. If you buy when everyone loved it you tend to make less money. We all know buy low and sell high, well that is the reality of it. You have to buy when “smart” people think it is crap. You will look foolish but you will be wealthy.
Don’t be that guy counting out new technology because you have never seen it before. Peter Theil said it himself, the next Bill Gates won’t be a software maker. We are in the new age and if you are spending all this valuable time that you could be capitalizing on emerging markets to stay complacent in what you know you can never get rich. You can’t get rich betting on the past. You can’t get rich holding on to where you are and what you know best.