Once upon a time, in a village much like our own, a strange IPO was born. The villagers found themselves beguiled by the IPO. It looked like other successful IPOs and did things that most other IPOs did, but it also acted quite differently in ways that both excited the villagers and gave them pause. Nonetheless, the villagers decided that the new IPO thrilled them, and they plowed money into it with a level of excitement that seemed troubling to some outside the village.
10 months later, the villagers were force to admit that they never really understood the IPO. The thing they thought they liked was never real, and the thing they bought was a different thing altogether. It was a thing that lived entirely at the whimsy of a larger thing that could destroy it whenever the mood struck. It was also a thing that seemed allergic to profits, and much more interested in global economic activism than flinty-eyed capitalism. Because of all the misunderstandings, the villagers now owned a thing that 75% less valuable than the day it was born.
That, my children, is the story of Etsy. With illustrations!
If you look closely, you can see the waning (and quasi-waxing for a moment there) interest in Etsy stock. We wrote extensively about how Etsy was not what people thought it was, and no one paid us any heed. At this very moment, Etsy is worth about just less than half of what it was the moment it began trading.
So listen up schmendricks, we're gonna do this again, and we want you to listen good this time: Snap is Etsy, but instead of selling you handwoven boobie pillows, it lets you look like a dog and then makes your pictures and video disappear.
But, to be fair, instead of losing $15 million in the year leading up to its IPO, like Etsy did, Snap lost almost $515 million. And while Snap doesn't have to carry around the constant existential dread of being obliterated for sport by the monolith that is Amazon - which could replicate Etsy and blow it up with a light effort - Snap does have to carry around the constant existential dread of being obliterated by Facebook.
Back in the innocent days of April 2015, we were very clear that we thought Etsy was a goofy but solid company. An online flea market that cultivated the cache of a Brooklyn hipster Amazon, generating about $200 million in annual sales on goods that they didn't even incur costs to create while also fostering a genuinely altruistic corporate culture. That's was not too shabby. But it was also not the makings of a $2 billion public company.
Snapchat is the accidental lovechild of Facebook and Twitter, an "ephemeral messaging" app created with the functionality of keeping nude selfies from being etched in the permanent online history of Millennials the world over. It had the visual connectivity appeal of Mark Zuckerberg's monster with the added value of of Jack Dorsey-ian immediacy. At the time of Etsy's IPO, Snapchat was the unanimous choice of tech's "Next Big Thing," and it's retained that title for probably too long. While the company has managed to spend the last few years making a celebrity of its CEO, constructing an excruciatingly cool office compound in Venice Beach and toying with sublimely ridiculous new business model ideas, it has seemingly not spent nearly enough time on truly preparing itself for going public.
And because it's not ready, Snap is acting like it's not ready. In another fun similarity to its Brooklyn cousin, Snap is trying to make itself an exception to some of the accepted rules in the IPO game. Much like Etsy hiring Goldman Sachs and Morgan Stanley but also registering as a B Corp. and then trying to curate small batches of its offering to let normal folks get a piece (a bizarre situation that resulted in the unendurably lame spectacle of Goldman handing out Etsy friendship bracelets to attendees of SXSW), Snap is trying to have its IPO both ways. By offering a three-tiered class structure Snap is essentially looking to make about $3 billion while simultaneously preventing anyone from outside the company gaining voting rights. Tech founders have been moving towards tamping down shareholder voting power for awhile now, but Evan Spiegel and his bros are offering NONE votes. That's ballsy as hell for a company that lost more than half a billion dollars last year and still has major questions going forward.
[But if Snap pulls this off though, we can already imagine a near future in which Travis Kalanick goes full Nero on the Uber IPO, offering stock with negative voting rights and putting his dog on the board.]
But back to Snap's "questions"; Like Twitter (yikes), Snap's biggest selling point is its user base and the projected growth of said user base. But like Twitter, is it though?
What Snapchat does is cool, but it's not hard to copy. Just ask Facebook, who offered $3 billion for Snapchat back in the day, was rebuffed and has recently decided to just replicate the ephemeral pic and video thing on Instagram. It's been great...for Facebook. In fact, just the other day Silicon Valley tastemaker Owen Williams wrote this on Medium:
We’ve all moved to Instagram Stories. I never thought I’d do it, but eventually, as I used it more, I found Instagram’s rip-off of Snapchat to be more authentic. Suddenly, instead of checking one app for beautifully manicured photos, and the other for raw feeds, I could get everything in one place… and it actually worked better.
According to multiple reports, Instagram Stories is now boasting 150 million daily users since launching in September. In June, Snapchat reported that it had 150 million users. Those numbers seem to indicate that there is some bleeding coming from Snap, and that bleeding is likely to only get worse now that Facebook has replicated the stories function for its already wildly popular WhatsApp.
And even if Snap wasn't seeing user growth plateau, you would be hard-pressed to find someone who has a confident and nuanced vision of how Snap would monetize those users going forward. It could be an amazing ad platform, sure. And people might jus decided that they want to get the news from the same place that they send their dick pics from, but there is hardly enough bedrock certainty in those plans upon which to build a $20 billion IPO valuation.
If we think back to April 2015, we remember a lot of musing over whether Etsy was Amazon or eBay. It's not unlike watching today's consternation over Snap being Facebook or Twitter. But despite the different options, the answer is still the same; "It's neither." Like Etsy, Snap is its own thing and it should be evaluated as such lest another village of hopeful simpletons end up with shares in a troubled company that they never understood in the first place.