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Snap’s Comeback Strategy With Partners

Snap (Before 2019 Q1)

Once characterized as the challenger for Facebook, Snap Inc. has faced fierce competitions from FB’s Instagram, which introduced a similar story feature in August 2016.

Snapchat vs. Instagram users comparison | Source: statista

Snap went IPO in March 2017 onto NYSE, valued at more  than $33 billion on the first day of trading, surpassing the previous $3 billion acquisition offer from Facebook in 2013 and a $30 billion acquisition offer from Google in 2016 (not verified, reported in August 2017, when Snap’s stock price had been declining to around $14).

Its road after IPO was not an easy one.

DAU growth peaked right before Instagram’s story launch. Other problems included the questionable change of Snapchat’s interface, departure of CFO (twice, first CFO departed in May 2018, second CFO departed in Jan 2019), etc.

Snap Partner Summit 2019 And Going Forward

The summit was held on April 4, on which new strategies and partnerships were detailed/projected.

By and large, Snap is learning from Facebook and is pivoting to becoming an “infrastructure”.

Broadly speaking, many firms are pursuing the infrastructure play: AWS wants to be the infrastructure for internet services (servers); Facebook & Google want to be the infrastructure of ads; Twitter & Youtube contents can be embedded in various ways, etc.

Snap now has updated its Snap Kit, to include a new Story Kit enabling other apps/sites to implant Snapchat Stories. Namely, users will be able to show/embed/insert their Snapchat Story in Tinder and Houseparty, two initial partners announced.

Snap Kit April 2019 | Source: kit.snapchat.com

Snapchat Audience Network is also being built to help other apps to monetize – a revenue-sharing practise to expand the audience/utility of Snap Ads, so that people who are not on Snapchat will be broadcasted the ads created by advertisers through Snap. [Read more about Facebook Audience Network]

Additionallly (besides ads), Snap announced the partnership with Fitbit to integrate Bitmoji avatars to Fitbit’s devices (Fitbit Ionic™ and Fitbit Versa™), a clock face that dynamically updates throughout the day based on your personal health and fitness data, activity, time of day, and weather. Also, Bitmoji will be seen on Venmo.

Snap’s Bitmoji on Fitbit | Source: theverge.com

 

Money Flows: Raise By Bonds And Invest In Growth

Corporate bonds are popular, especially those sold by companies that have strong cash flows like Tencent and Saudi Aramco.

For investors, investments in those bonds are not as volatile as equities.

For corporates, there is no dilution in earnings and they could benefit from growth investments with low cost of capital.

Two recent examples (this week): Tencent and Saudi Aramco.

Tencent has been a very active investor in Chinese and global markets. It is one of the two modern “empires” rooted in China (the other being Alibaba). Some of its global investment include:

Tencent just announced that it has raised $6 billion in a bond sale, including $2 billion in fixed and floating rate five-year notes, $500 million in seven-year notes, $3 billion in 10-year notes and $500 million in 30-year notes, carrying coupons of 3.280 percent, 3.575 percent, 3.975 percent and 4.525 percent on the fixed rate five-year notes, seven-year notes, 10-year notes and 30-year notes.

Tencent has now caught up with Alibaba, who sold $7 billion bond in November 2017. (2018 is a year of turmoil that no big bond sales are possible)

Saudi Aramco, the world’s biggest oil producer, was the world’s most profitable company in 2018 (almost three times as much as Apple).

And Aramco has planned bond sale would raise around $10+ billion and is meeting investors this week around the globe.

Aramco has a crucial role to play in Saudi Arabia’s diversification from oil production. And an important part of the strategy is to invest in technology and other high-growth sectors around the world through Saudi Arabia’s Public Investment Fund (PIF), a major backer ($45 billion over 5 years) of Softbank Vision Fund since 2016.

Essentially, Saudi (and PIF) and Tencent are getting low-cost capital from bond sales and invest in tech. And the risks for bond investors are low, given Aramco’s core assets/cash flows and Tencent’s ubiquitous presence in Chinese economy.

It’s gonna be a good time for startup companies that fit Tencent’s or Saudi’s appetite…

Middlemen’s Hard Time… PBMs

It has been more than a month since the 7 major drug manufacturers’ CEOs testified before the congress on February 26.

One of the “problems” that pharma CEOs complained about was pharmacy benefit managers (PBMs) or the middleman problem.

In a healthcare system involving drugmakers, PBMs, pharmacies, insurers, patients, etc., one of the premises behind CVS’s $70 billion acquisition of Aetna and Cigna’s $54 billion acquisition of Express Scripts might actually make them vulnerable in front of regulators: their bargain power.

CVS Health, Cigna, McKesson, Rite Aid, Walgreens… companies with relatively large exposure between pharmaceutical companies and patients/payers are having a very hard time.

Source: Author, Yahoo Finance

What’s ahead – on March 13, the same committee (Senate Finance Committee) said it has called 5 major PBMs to testify on April 3 (tomorrow…)

    • Cigna
    • CVS
    • Humana
    • OptumRx
    • Prime Therapeutics

They must have been prepared.

Stay stunned.

An Excerpt From Bad Blood

I have talked about this as the most exciting part of Bad Blood with friends several times that I would like to read the original wording again and share it here.

“Meanwhile, behind the scenes, Holmes was trying another avenue to quash the story. In March, a month after I had started digging into the company, Theranos had closed another round of funding. Unbeknownst to me, the lead investor was Rupert Murdoch, the Australian-born media mogul who controlled the Journal’s parent company, News Corporation. Of the more than $430 million Theranos had raised in this last round, $125 million had come from Murdoch. That made him the company’s biggest investor.”

“By the time Mike Siconolfi and I had our conversation about the ancient art of Sicilian fishing in late July, Holmes had had three private meetings with Murdoch. The latest had taken place earlier that month, when she’d hosted him in Palo Alto and showed him the miniLab. During the visit, she’d raised my story, telling him the information I had gathered was false and would do great damage to Theranos if it was published. Murdoch had demurred, saying he trusted the paper’s editors to handle the matter fairly.

In late September, as we were getting close to publication, Holmes met with Murdoch a fourth time in his office on the eighth floor of the News Corporation building in Midtown Manhattan. My desk in the Journal’s newsroom was just three floors below, but I had no idea she was on the premises. She brought up my story with renewed urgency, hoping Murdoch would offer to kill it. Once again, despite the substantial investment he had at stake, he declined to intervene.”

– John Carreyrou. “Bad Blood.”

Besides other considerations, the “nonaction” by Mr. Murdoch is simply thrilling and kind of rare these days.

Lyft On Nasdaq

The first of a series of tech IPOs – Lyft debuted on Nasdaq today. With its stock priced at $72, Lyft is offering 32,500,000 shares of its Class A common stock, plus up to an additional 4,875,000 shares (raised $351 million in total).

The market cap excludes things like RSUs to be issued: 1) 77,390,807 shares of our Class A common stock reserved for future issuance under our equity compensation plans 2) 31,605,338 shares of our Class A common stock subject to RSUs outstanding, but for which the time-based vesting condition was not satisfied as of December 31, 2018 (including 15,065,349 shares of our Class A common stock subject to RSUs granted after December 31, 2018) 3) 7,037,379 shares of our Class A common stock issuable upon the exercise of options to purchase shares of our Class A common stock outstanding as of December 31, 2018 (weighted average $4.74 exercise price)

New Foreign Investment Law, Boao Forum for Asia 2019 And China Development Forum 2019

Following the closing (March 15) of National People’s Congress (NPC)’ 2019 annual meeting in Beijing, two important annual forums were held – China Development Forum 2019 (March and Boao Forum for Asia 2019

One of the major progress made during NPC’s annual meeting is the approval of the new foreign investment law #中华人民共和国外商投资法 (original link here)

The law was first introduced as a draft in 2015 and will come into effect on January 1, 2020.

The new foreign investment law will replace the “three foreign capital laws” – Law on Sino-Foreign Equity Joint Ventures #中外合资经营企业法, Law on Foreign-Capital Enterprises #外资企业法 and Law on Sino-Foreign Cooperative Joint Ventures #中外合作经营企业法, which were introduced in 1979, 1986 and 1988 respectively. They were updated along the way but structural/fundamental changes won’t be easy. (you can’t expect a law to be efficient and perfect after 30-40 years.. in a fast-changing environment)

China Development Forum is more focused on China. And of course, the newly-passed foreign investment law was discussed and introduced to all the CEOs/managements from foreign companies among others.

Again, on Boao Forum For Asia, Premier Li Keqiang reemphasized the plan to make detailed regulations to enforce the effective implementation of the foreign investment law.

Updates: