Should cash-strapped Snapchat sell out? To Netflix?

Snapchat needs a dad of sugar. Its cash reserves decrease from gigantic quarterly losses. The bad morals of a battered stock price and cost reduction measures drive the momentum. And the intense competition from Facebook is preventing rapid growth. With only $ 1.4 billion in assets at the end of a brutal third quarter of 2018 and analysts estimate that it will lose $ 1.5 billion in 2019 alone, Snapchat could run out of money before a balance is projected in 2020 or 2021. [19659002]And that? What are the Snap options?

A long and lonely road

Snap's great hope is to show a story of business change like Twitter, which registered an increase of 14 percent this week despite the monthly loss of active users by increasing daily participation of users and generate benefits. . But without a change that greatly increases the daily time spent and reduces costs, Snap could take years to achieve profitability. The company has already laid off 120 employees in March, or 7 percent of its workforce. And 40 percent of the remaining 3,000 employees plan to leave 11 percentage points more than in Q1 2018 according to the internal survey data reached by Alex Heath of Cheddar.

Snapchat trusts the Project Mushroom engineering review of its Android Application to accelerate performance and, therefore, accelerate user growth and retention. Snap neglected the Android market in the developing world for years, as it focused on American teenagers with iPhone capabilities. Since Snapchat has to do with fast videos, slow loading times make it almost unusable, especially in markets with slower network connections and older phones.

Looking at the competitive landscape, WhatsApp's Snapchat Story cloning status has increased to 450 million daily users while Instagram Stories has reached 400 million daily; Much of that is coming from the developing world, thus blocking Snap's growth abroad, as I predicted when Insta Stories was launched. Snap actually lost 3 million daily users in the second quarter of 2018. Snap Map has not become ubiquitous, Snap's original Shows are still not high enough to drag tons of new users, Discover is an overloaded disaster. clicks and Instagram has already copied the best parts of its ephemeral message.

SAN FRANCISCO, CA – SEPTEMBER 9: Evan Spiegel of Snapchat attends TechCruch Disrupt SF 2013 at the San Francisco Design Center on September 9, 2013 in San Francisco, California. (Photo by Steve Jennings / Getty Images for TechCrunch)

As Rich Greenfield of BTIG points out, CEO Evan Spiegel states that Snapchat is the fastest way to communicate, but it is not for text messages, and the value default that they make the conversations disappear. It is unreliable for utilitarian chat. And if WhatsApp added an ephemeral messaging feature of its own, Snapchat's growth could be even more difficult. Snap will have to hope that it can keep its existing users and extract more money to continue reducing losses.

All those product errors and market negligence have become a serious growth issue for Snapchat. It lost another 2 million users this quarter and expects to sink further in the fourth quarter. Even with the reconstruction of Android, Spiegel's guarantees for a renewed growth of users in 2019 seem false. That means that it is highly unlikely that Snapchat will achieve Speigel's goal of achieving profitability in 2019. It is necessary for an investor or an acquirer to come to their aid.

A ransom check

Snap could sell more capital to raise funds. From $ 500 million to $ 1 billion, it would probably give you the necessary clue to enter black. But, from where? With all the scrutiny on Saudi Arabia, Snap could avoid taking money from the kingdom. Saudi Prince Al-Waleed Talal has already invested $ 250 million to buy 2.5 percent of Snap in the open market.

Snap's best bet could be to take more money from Chinese Internet giant Tencent. The massive corporation already spent around $ 2 billion to buy a 12 percent stake in Snap from the open market. The owner of WeChat has many synergies with Snapchat, especially because he has a massive gaming business and Snap plans to launch a gaming platform for third-party developers.

Tencent could be a possible buyer for Snap, but given Trump's trade war with China, he could pressure regulators to block a sale. The state of American social networks such as Twitter and Facebook that are besieged by interference from foreign elections, trolls and hackers could make the US government understandably worry about a Chinese giant that owns one of the best apps for teenagers

Regardless of who invests They are likely to demand real voting rights, something that Snap has denied investors through a governance structure. Spiegel and his co-founder Bobby Murphy get 10 votes per share. That is estimated at 89 percent of voting rights. The shares issued in the IPO came with zero voting rights.

Evan Spiegel and Bobby Murphy, Snapchat developers (Photo by J. Emilio Flores / Corbis through Getty Images)

But that surely would not sit well with any investor willing to pour hundreds of millions of dollars into the besieged company. Spiegel has taken on the responsibility of driving the disastrous redesign earlier this year that coincided with a significant drop in its discharge range. It also inspired a tweet from the mega celebrity Kylie Jenner when hitting the app that took away $ 1.3 billion from the company's market capitalization.

Between the redesign of failure, stagnant product innovation and Spiegel laughed at the Facebook competition only to be crushed by it, The CEO no longer has the excellent reputation that allowed him to gain full control of the vote of the co-founders That means that investors will want to be sure that if they inject a ton of cash, they will have some recourse if Spiegel mismanages it. You may have to swallow your pride, issue shares with the right to vote and commit yourself to the milestones you must fulfill in order to preserve your role as executive director.

A Soft Landing Somewhere else

Snap could alternatively surrender as an independent company and be acquired by a giant deep pocket technology. Without having to worry about finances or short-term goals, Snap could invest in improving its features and long-term application performance. Social networks are difficult to eliminate completely, so, despite the competition, Snap could be lucrative if it is helped in this difficult time.

Combine that with the $ 637 million bonus Spiegel got for bringing Snap to the public, and he has few financial incentives or shareholder pressure. the to sell Even if the company was bleeding a lot more than it already is, Spiegel could be mounted on the ground.

Once again, the biggest barrier to this road is Spiegel. Combine totalitarian vote control with the $ 637 million bonus that Spiegel obtained for making Snap public, and has little financial incentive or pressure from shareholders that forces it to sell. Even if the company was bleeding a lot more than it already is, Spiegel could mount it on the ground. The only way to reach an agreement could be that Spiegel perceives it as a victory.

The sale to Disney could be a turnaround. He has not really discovered the mobile amid the distraction of superheroes and Star Wars. Your main audience is addicted to YouTube and Snap, even if they should not be in them. Both are Los Angeles companies. And Disney has already raised $ 350 million to buy the Club Penguin children's social networking game. Becoming head of mobile devices or something like that for the most iconic entertainment company of all time could have a position wide enough to attract Spiegel. I could see him being a candidate for Disney CEO someday.

How about you follow in the footsteps of Steve Jobs? Apple is not social. He failed as badly with efforts as his network of Ping music listeners that basically has renounced the entire market. iMessage and its spirited animoji are your only bets. Meanwhile, it is increasingly difficult to differentiate with mobile hardware. Each new iPhone seems closer to the last one. Apple has resorted to questionable decisions, such as getting rid of the frequently lost headphone and reliable TouchID to keep the industrial design moving.

Increasingly, Apple must rely on its iOS software to compete for customers with Android headsets. But you know who's great at making interesting software? Snapchat. Do you know who has a great relationship with the next generation of phone owners? Snapchat. And do you know who the CEO could probably smile seriously next to Tim Cook announcing a brighter future for social networks unlocked by two privacy-focused companies joining forces? Snapchat. Besides, do you think about all the funny jokes of Snapple?

There is the possibility of getting revenge on Facebook if Snapchat wants to associate with the old archenemy of Mark Zuckerberg, Google . After Zuck declared "Carthage must be destroyed", Google+ failed on Google+ and its messaging applications became a fragmented disaster. Alphabet has since moved away from social networks. Of course, it still has the giant that is YouTube, a favorite of the perennial teenagers along with Snapchat and Instagram. And it has the perfect complement to the ephemeral Snap in the form of Google Photos, the best permanent photo file tool of its kind. With the consumption side of Google+ going off after accidentally exposing user data, Google still lacks a traditional social network where being a friend becomes a fan.

What Google has is a reputation for delivering the future. From Waymo's automatic driving cars to Calico's plan to make you live forever, Google is a creative place where great ideas materialize. Spiegel could frame Google in accordance with its philosophy of creating new ways to organize and consume information that adapts to human behavior. He surely would not mind being stuck with Internet visionaries like Larry Page and Sergei Brin. Google's experience with Android could revitalize Snap in emerging markets. And together they could take a stronger turn on Facebook.

But there are problems with all these options. Buying Snap would be a massive bet for Disney, and Snap's persistent bad reputation as a sexting app could deter the lords of Mickey Mouse. Apple rarely buys such advanced stage public companies. CEO Tim Cook has been able to take moral ground because Apple gets its money from hardware instead of personal information through ad targeting. If Apple owned Snap, it would be in the data mining business like everyone else.

And the prevalence of Google in the software could catch the attention of regulators. The prevailing sentiment is that it was a massive mistake to let Facebook acquire Instagram and WhatsApp, since it centralized power and created a social empire. With Google that already has YouTube, the government may have trouble buying one of the other popular teen apps.

That's why I think Netflix could be a big buyer for Snap. Both are video entertainment companies that are at the forefront of cultural relevance, but they do not have product overlays. Netflix already showed its appreciation for the innovation of Snapchat by adopting a format of vertical video clip Stories to discover and preview what could be seen. The two could partner to promote Netflix originals and subscriptions within Snapchat. Netflix could teach Snap to win exclusive content while getting a place to distribute videos that last less than 20 minutes.

With a market capitalization of $ 130 billion, Netflix could certainly afford it. Although Netflix already has a $ 6 billion debt from Originals financing, it would have to sell more debt or issue Netflix shares to Snapchat owners. But given Netflix's high performance, massive market share and cultural primacy, the big question is whether Snap would delay it.

So, how much could it cost? Snap's market capitalization is hovering around $ 8.8 billion with a price per share of $ 6.28. That's around its historical low and only a little more than a quarter of its IPO pop share price. The acquisition of Snap would surely require paying a premium above market capitalization. Remember that Google already offered to buy Snap for $ 30 billion before its final round of financing and its IPO. But that was before the rate of growth of Snap sank and began to lose the War of the Stories with Facebook. A much smaller offer could look much nicer now.

Social networks are hard to kill. If Snap can reduce costs, fix your product, improve revenue per user and get some external investment, it could survive and rise slowly. If Twitter is a clue, aging social networks can become lucrative businesses if enough time and attention is given to the product. But if Snapchat wants to play in the big leagues and continue to have a big influence on the future of the mobile, it is possible that he should leave the idea that he can win on his own.

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