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The bull case on Snapchat is that there's a company in China called Tencent that's worth $100 billion. And Tencent is worth $100 billion because it takes its me
by mathattack 13y ago
The bull case on Snapchat is that there's a company in China called Tencent that's worth $100 billion. And Tencent is worth $100 billion because it takes its messaging services on a smartphone and then wraps them in a wide range of services—things like gaming and social networking and emojis, and video chat—and then charges for all these add-on services. And it has been one of the most successful technology companies of all time and is worth literally $100 billion on the Hong Kong Stock Exchange. Maybe that's [CEO Evan Spiegel's] plan. Maybe Evan's plan is to transplant the Tencent business model into the U.S., which nobody has actually been able to do yet.
This explains why Snapchat walked away from $3 billion dollars. If you have a VCs mindset and even have a 10% belief in that bull market, then the offer was too low.
- tanzam75 13y agoTencent faces a markedly different environment in China than Snapchat faces in the United States. First, gaming consoles are illegal in China. Second, Chinese people prefer to pirate rather than to buy software. Third, Facebook is blocked by the Great Firewall of China. This means that Tencent faces no competition from console games, from packaged PC games, or from Zynga and clones. Thus, Tencent gets to collect a large percentage of the total gaming dollars (or rather, yuan) spent in China. What's the likelihood of Snapchat getting game consoles and Facebook banned in the United States? Does Snapchat really have a 10% chance of turning into the next Tencent? Or is it more like 1%? Or 0.1%?
- ghshephard 13y agoGaming consoles are illegal in China? No xbox/nintendo/playstation? Fascinating - What's the thinking behind that?
- tanzam75 13y agoOfficially, game consoles are banned in China to protect children from their pernicious influence. Unofficially, who knows what the real reason is? It certainly hasn't hurt Tencent, whose market cap is now greater than that of Sony + Nintendo combined.
- tanzam75 13y agoSpeak of the devil -- China just lifted the 14-year ban on videogame consoles today. http://www.reuters.com/article/2014/01/07/us-china-gamesconsoles-idUSBREA0606C20140107 http://www.reuters.com/article/2014/01/07/us-china-gamescons...
- drinkzima 13y agoThe problem with logic like that is that even suspending disbelief and accepting the 10% chance, a discount rate needs to be applied. Risk-adjusted returns are getting entirely ignored. If they have a 10% to turn into Tencent tomorrow, at 10% chance there is some value. If we are talking about 5-10 years down the line, a reasonable discount rate like 25% puts the $100B of future value at something like $10-30B. Suddenly a 10% isn't even close to good enough. This ignores the extremely unlikelihood that consumers in the US monetize the same way as in China to even reach a similar market cap (Tencent has higher top-line than Facebook).
- notastartup 13y agoDemographics and culture. Teens sexting tool vs legitimate messaging service adoption by demographic that can afford the add ons. apples and oranges imo.