CEO Evan Spiegel, who infamously turned down a $3 billion
offer from Facebook last year, is looking to raise money to the tune of $19
billion. Not bad, for an idea incubated in a Stanford fraternity basement.
Negotiations are apparently being done through a series of escalading-in-price
snaps from Spiegel’s personal account. But, in all serious, that is $19 billion
valuation for a company with approximately $0 in proven revenue[1].
This isn’t a knock on the valuation, in fact, it’s more a
kudos to Spiegel’s patience. Turning down $3 billion dollars is ballsy, to say
the least, and shows, hey, maybe this guy knows what he is doing. Marc
Andreessen had a fire tweet on this topic two Sundays ago:
Two crucial mistakes made by many high-potential private tech companies: 1 Sell; 2 Go public. Both are mistakes of commission, not omission.
— Marc Andreessen (@pmarca) February 8, 2015
Instead, this rich private valuation, should serve as a
warning to mom & pop investors when an IPO opportunity comes a knocking.
When heavily venture financed companies like Uber, Xiaomi, & Snapchat make
their eventual stock market debut, it is to reward the existing shareholders.
Nobody knows what a fair valuation for IPOs is, but, you know who has a pretty
good idea: the people already invested in them. Honest IPO's are like honest mechanics, extremely rare.
Back to Snapchat for a second. They are focusing their revenue
efforts on curating news and creating original content; so you can see why they
would need a substantial capital infusion. Playing to their strengths, with short
digestible news clips, is borderline genius. It captures the elusive market of
people who are too lazy to read, but, still like to pretend they know
everything. The total addressable market on this is yet to be determined, but, early
reports suggest it is strongly correlated with 95% of millennials. Okay, I’m
being patently ridiculous but let’s just say I’m long 2016 call options on Snapchat.
Speaking of digestible news clips, a little guilty pleasure
of mine is to watch CNBC’s halftime report clips featuring Josh Brown. It’s fun
because occasionally, by which I mean perpetually, Josh subtly trolls the hell
out of some of his colleagues. Last week everybody and their mother was saying
how effing great the United State’s markets are and how they wouldn’t be caught
dead investing anywhere internationally. Gulp! Remember, these are
“professionals” who manage money for a living and even they have a hard time not
letting recency & home bias influence them. Here is Josh:
“The outlook for the
United States is superior to the outlook for virtually everywhere else. No
shit. We are all aware of this. This is why Bob Schiller’s CAPE ratio alarm is
going bananas right now. But this superiority is what’s already expected and
therefore currently being discounted into today’s prices.
What isn’t being
discounted? That’s the more interesting (profitable) question.
If every Harry, Dick, and Tom is fully invested in US equities
it doesn’t leave much margin for error. Every investor knows the mantra “Price
is what you pay, value is what you get”. Some just let recent events cloud
their thinking more than others.
To the man with the hammer every problem looks like a nail.
Cullen Roche tackles the problem of extrapolating value investing principles,
used in individual stock selection, towards markets as a whole. It is
reminiscent of a recent argument going on in sports, namely basketball twitter:
the eye-testers vs. the data heads. Rationally you would take a liberal
approach, where you take the best of both ideologies to form your thought process.
Yes, the influx of “big data” has been important for the teams at the top of
the NBA standings, the
Hawks and Warriors, but when the number
one best-seller on statistics is a book from 1954 entitled “How to Lie with
Statistics”, which is essential reading BTW, you’re best forming a hybrid
approach to analysis. After all, it doesn’t take a quant to see repeatable
monotonous form in both Curry’s and Korver’s jump shot.
And therein lies the important part: your success has to be
replicable. Here is Frank Zorilla on the importance of developing a strategy
and sticking to it:
“What’s important is to know what works for you and what works within your time- frame”
There are 50 ways to leave your lover
crooned Paul Simon. There are also 50 ways to make money investing. Top off
this post by peeping this video from Howard
Marks.
Follow Wesley Vaughan @backpackbanker
[1]
Yes, they launched ads in October 2014 but no word yet on what the figures look
like.
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