Deep dive into Snap 2.0
Is the inflection point here?
1.0 My previous thesis
About a year ago, I wrote my Deep dive into Snap, arguing the company is Meta’s free Research & Development department, as Meta is copying all of the new products/features introduced.
In the meantime, the Co-Founder and CEO, Evan Spiegel, has updated his LinkedIn profile with a similar joke, calling himself “VP Products" @ Meta”.
Despite having almost 1 billion monthly active users and a much smaller market cap (per user) compared to any other platform, I’ve avoided this company because of its low ARPU.
Snap has always struggled to monetize its users. Since my first deep dive, the share price is down ~36%.
2.0 The new thesis
Three months ago, the company introduced "Memories Storage Plans”, charging a monthly fee if the photos/videos take more than 5GB of storage.
This will likely be perceived as “paying for peace of mind”. This is not so much a price decision, but an emotional one.
In addition, if others are paying for it, there will be both social proof and pressure.
There are 12 months of temporary back-up, which again, is a word used on purpose, so that the users take action, as after the 12 months, the memories will no longer be available.
I do think that this is a HUGE deal, and for some reason, it doesn’t get the attention it deserves.
If 5% of users eventually pay for the cheapest plan at $1.99/month, that would be $1.2 billion in (high-margin) recurring revenue.
For comparison, the company’s revenue (primarily from ads) over the last 12 months was $5.8 billion.
Snap already stores these files, so the only additional costs will be related to billing/customer support.
Users with memories below 5GB won’t be affected by this. The users above 5GB have two choices:
Pay the monthly storage fee - if so, Snap benefits.
Don’t pay the monthly storage fee - if so, the memories are removed and Snap benefits again, by having lower storage costs.
As I am typing this, the market cap is $13 billion, and the net debt is a bit over $1 billion.
If the newly introduced memory storage plans bring ~$1 billion additional revenue (not right away, but in a few years), the fair value of the company is above $20 billion.
Snap finally found something that Meta won’t copy - storage.
Check out the last deep dives:
Interesting take. Would be helpful to know how many users actually exceed the 5GB and how many of them would be willing to pay? 5% could even turn out to be quite optimistic.