A Camera Company Comeback

During my first year of grad school in 2021, I became obsessed with the idea of working at Snap. There were a few reasons why…

1. I saw they were actively recruiting on-campus, a positive sign for my chances.

2. I wanted to be a product manager, and ended up taking a class from a super senior product lead at Snap. It was like getting guitar lessons from John Mayer.

3. Third, Snap was absolutely killing it.

Here was their stock chart at the time.

When other companies had COVID layoffs, Snap basically threw a COVID party, celebrating a growing userbase and a lot more engagement.

I tried and failed to land a Snap internship that year, and I was bummed-out. But what a difference a few years makes….

These days, Snap is on the ropes. They’ve taken some huge punches, and many naysayers have written them off. But I still see signs of life. Before I get to the bright spots, though… let’s experience the punches together.

Gut Punch #1 – April 2021

Imagine that 99% of your revenue is from advertising, and suddenly one of the two major smartphone makers decides that ads are bad (cough, Apple). They cut-off your access to the data and user tracking that helps you do effective ad targeting. For discerning advertisers with options, weaker targeting is no bueno.

Gut Punch #2 – March 2022

Imagine that you’re still incredibly, inexplicably, incurably dependent on ads, and suddenly everyone is worried about a recession and becomes obsessed with cost reduction. It’s hard to get out of your office leases, and it takes time (and is painful) to plan and execute an employee layoff. You know what isn’t hard? Cutting advertising spend. During a downturn, it’s one of the first things to go. Because Snap was (and still is) so dependent on ads, this hurt them more than most.

Gut Punch #3 – August 2022

You aren’t immune from the pressures of cost reduction. In fact, the pressure on you is even higher because of the pressure your advertisers feel. Buckling under that pressure, and looking for ways to survive, you layoff 20% of your staff – more than 1,600 people.

What’s left to be excited about?

Snapchat+

A lot of the pain stems from advertising – why not get out of the advertising game? That’s exactly what CEO Evan Spiegel seems to have thought. In June 2022, they launched Snapchat+, which costs $3.99 per month. In exchange, Snapchat gives their users extra customization options and early access to new features, including AI tools.

So far, it’s going pretty well – they announced that they had 5M subscribers in their last earnings call. That would mean ~$240M per year in new revenue for Snap. For a company that brought in $4.6B in 2022, that’s only 5% of revenue, but it’s still growing. In April 2023, they reached 3M subscribers. Then in June, they reached 4M. Then in September, 5M. That’s ~15% growth month-over-month from April to June, slowing to ~7.5% from June to September. If we assume it slows further to 5% per month for the next few years, this could still hit $1B per year in the next 2-3 years. For a company desperate for revenue diversification, that’s not a bad start.

Augmented Reality

Just the same way I admire Meta and Mark Zuckerberg for toiling away on virtual reality and the metaverse (in spite of the critics!), I admire Even Spiegel and Snap for toiling away on A/R.

Snap has taken two different approaches simultaneously – 1/ lenses (for the masses) and 2/ Spectacles (for the hardcore hardware geeks).

Lenses

Today, 250M+ people use lenses on Snap, creating effects and overlays on their cameras. That’s a lot of people, and hugely valuable for Snap. Why? These folks are all basically testing and improving the product. Think about how ChatGPT and OpenAI benefitted from getting their early product into the hands of the masses, finding bugs and helping train the next models – Snap is benefitting in the same way. Plus, it looks pretty fun. I’m not on Snapchat, but check out how wild some of these random lenses are from the “trending” page:

Spectacles

Spectacles are the headsets Snap makes. For consumers, they’ve only released 3 models so far, and the most recent one was ages ago – in 2019. For developers, they released their most recent version in 2021, in an attempt to drum up excitement and get more software applications built. So far, the hardware play is not working, but they can take solace in the fact that it’s not really working for anyone (and Apple hasn’t shipped their Vision Pro yet, so the pressure isn’t fully on).

As I’ve written about before, being early to new hardware platforms is key, so it’s good to be trying, even if you’re failing. And taken together with the positive momentum with Lenses, they are still in good position in A/R.

Users

Last but certainly not least – their user base. I was surprised to see this, but despite the ups and downs in stock price, user growth has been steady.

North America and Europe are more mature, growing in the single digits, but the international explosion in users is more than making up for it.

Also, it strikes me that this user growth makes the revenue diversification problem much less intimidating. As soon as you start to find new revenue streams that are working – at least on a smaller scale – you can throw fuel on the fire by driving your 400M+ daily active users towards those revenue streams.

Bonus Bullets

Quote of the Week:

— Dara Khosrowshahi, Uber CEO

Quick News Reactions:

• Meta AI Images — They have a free tool out that lets you generate images from text prompts. I had fun playing with this, and it’s much easier (and free) to get started compared to midjourney and others. It’s worth checking out. Here’s the link.

• GTAVI? GTFO! — Yep, a new Grand Theft Auto (VI) will come out in 2025, but the hype train has already started. They are putting out trailers and people are going nuts. As far away as 2025 feels right now, the Cybertruck took longer (4 yrs) from announcement to delivery!

• Netflix is Chillin’ — Netflix co-CEO Ted Sarandos confirmed what we already knew… “We have too much content… we didn’t really have much interruption in our delivery to customers." Netflix was absolutely fine with the writers and actors strikes… See my old article about the strikes for more on this.

• Nice Threads. They are still in good shape. They doubled daily downloads during the month of November, outpacing Twitter. I’m already feeling the shift and seeing tons of people joining threads.

Tech Jobs Update:

Here are a few things I’m paying attention to this week:

• Big Tech Job Posts: LinkedIn has 7,855 (+2.2% WoW) US-based jobs for a group of 20 large firms (the ones I typically write about — Google, Apple, Netflix, etc.).

• Graph: Layoffs since covid (Source: Layoffs.FYI). Note that this is showing in-progress Q4 numbers.