OH, SNAP!

Cassius Marcellus “Cash” Coolidge – Dogs Playing Poker 1903

Wednesday, March 1, 2017: The market is excited about the IPO of a company that is not profitable. Jim Cramer is already pimping the stock as a “phenomenal trade”.   I’ve been at this game for more than 25 years, and I know a rerun when I see one.  This looks to be a tired remake of the old poker game played in the 1990s. And even though we all know how this game ends (Market Watch), we can’t stop ourselves from watching or asking the dealer to cut us in. Enjoy!

Forget PokerStars and Amaya, that’s soooo 2000’s. The new big stakes game in online poker hits the street tomorrow with the SNAP IPO, only this time the rules of the game are different. The early players sitting at the table from Lightspeed, Benchmark, IVP, and Kleiner placed their bets and round after round the value of the pot increased. Snap’s co-founder, Evan Spiegel is sitting at the table as the dealer, maintaining his poker face, shuffling the deck, dealing the cards, all the while talking about really cool Snap Spectacles and Bitmojis…step right up, everyone’s a winner!

After nine trips around the table and $2.65 billion in the pot, it’s time to raise the stakes. The Morgan Stanley, Goldman Sachs, JP Morgan, et al. investment bankers sitting at the table, hands sweaty with excitement begin to look for new players to join the game. We gotta take this game on the road and find some pigeons!

The pace of the game slows as the search for new players kicks off with the “road show”.  London, New York…the dealer keeps asking 

“Who are these guys and why are they asking these questions about Snap’s business model, stickiness, slow growth, competition and of course the dual class of shares.  What do they mean, our growth curve looks more like Twitter than Facebook? Look guys, real investors don’t understand the value of Twitter.  It must be a very bigly valuable company if POTUS loves using it.  And competition?? How good can they be?  My girlfriend Miranda, did I mention that she was a Victoria’s Secret Angel, doesn’t think much of Facebook because they keep stealing all of my ideas. I was the one that came up with the idea for disappearing pictures and yes, they really do disappear and I promise they will never come back to haunt you because they are not stored somewhere in the cloud, whatever that is… and who else had the foresight to buy Bitstrips for $100 million?  I just love those funny little comic faces, makes me laugh all the way to the bank. A lawsuit about misleading user growth metrics, bah humbug. Look what I did with the last lawsuit…a quick $157.5 million settlement and it went away, it’s not like it’s my money! And just so we’re perfectly clear, it’s not software that’s eating the world, it’s consumer hardware products!  Just look at the successful GoPro and Fitbit IPOs and those guys with the fancy Flip camera, boy did they do well when Cisco acquired them…besides, who is that Andreessen guy and what has he ever done?”

Ok, let’s cut to the chase, our dealer and his buddy Bobby get your money and keep control of their business as well…nothing to share here 

The bankers calm everyone’s nerves… 

“Everyone relax, we’re off to a slow start but just wait until we hit the west coast, they’ll love ya and just to make sure we’ve signed up with Twitch so that millions of players can watch the game”.  

Monday and Tuesday go like clockwork and by Wednesday numerous news sources are saying that the deal is “multiple times oversubscribed”  Tough decisions to make, the ducks are quacking and it’s time to feed them – do we increase the issue price? increase the size of the issue? or both?…decisions, decisions.

Tomorrow’s the big day, the bankers want to make sure that we don’t price too high or we won’t get the big first-day bump.  Gotta make money for our IPO investors because they pay for our place in the Hamptons and besides, the Company shouldn’t consider the IPO being priced below market, it’s really just the cost of publicity. We need excitement, froth, FOMO and just let the human greed do its thing.

The Cristal is on ice, Evan and Bobby get their Cheshire Cat emojis ready to snap when he rings the bell.  The new “Investors” who subscribed for shares may have been cut back on their allotment but nonetheless, their traders have their twitchy fingers on the sell key.  The bell rings, shares trade hands at a frenzied pace and ever rising price. The “investors” are having a great day…early players at the table reach into the pot and take back their money and lots more. The dealer smiles and fills his pocket, still wondering if this is all a dream.  Miranda assures him it’s not, “we’re just playing our part to help make America again”.

Over the next couple of weeks Snap’s share price peaks and then begins a slow descent as the first day buyers begin to understand that they didn’t pay for ownership in Snap, only the chance to ride a roller coaster held together with funky glasses, a product that really isn’t that special and a burn rate that sucks, not to mention the lack of a business model or any visibility to profitability.  Not to worry, Snap will figure out a way to monetize all of those kids…we can push them advertising for sugary drinks, driverless cars, the newest smartphones or the next Star Wars episode.  Hang in there, it’s going to take at least six months to see what’s really going to happen. By then we’ll know if Snap is worth tens of billions of dollars, but let’s hope we have a sense before escrow shares become freely trading!  Maybe it’s time for the first-dayers to cash in what’s left of their table stakes and drag their butt home.  

Oh well, there always a chance to win big when WeWork does an IPO.  Surely there are great prospects for that company with long term fixed liabilities matched by short term contracts signed by a young transient workforce.  

Can anyone say Regus, vintage 2003?

 

Posted in: Q1 Blog

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