Tuesday, July 11, 2017


Snapchat is an app that lets you send doodley pictures your friends.  Widely used by teens/millennials.  Its different from Facebook in that its private - you only send to your close friends, and pictures are removed after viewing.  Its a way to talk with around 20 or so of your friends, rather than to show off to the whole world.  70% of Snapchat users are female.

The Numbers

Snap has never been profitable:

  • Revenue has been smaller than COGS for the last 2 years.  Let alone all the other costs.
  • I've excluded stock compensation costs here.  Lets optimistically consider them "non-cash" or "one-off".

Snap is burning cash:

With 3.2bn cash on their balance sheet from their IPO, they can last another 4 years at their 2016 "burn rate".  The only good thing we can say is that cash burn remained steady in 1Q17.

The key for a company like this is to either:
  • Increase its user base to gain critical mass by the network effect, so that they become attractive to advertisers.
  • Or else, they may already have gained critical mass in the teen/millennial market, and look for a way to monetize it.
For the first way: their Daily Active Users (DAU) has risen spectacularly since 2014, but levelled out in 1Q17, sending the stock down 25%.

For the second, they have several ways of monetizing their experience (1) (2) (3) which look interesting:
  • For their normal app: ads, lenses and geofilters.
  • Stories: photos or short videos, with annotations, doodles and music.  Post them in your Stories section and they can be seen by all your friends for 24 hours.
  • Spectacles: spectacles which can take 10s videos uploaded to snapchat.  They are pretty cool looking, not geeky like google glass.
We have not seen any meaningful increase in revenue in 1Q17 due to these.  Maybe we will later.


Snap's competitor is Facebook, who tried to buy the company for 3bn in 2013 but was rejected.  Since then FB has directly competed with them by trying to make Snapchat clones (which failed) and outright copying their Stories functionality into Instagram.  This succeeded: Instagram Stories now has 200m users, more than Snapchat's 166m.

(Source: Business Insider)

FB wants to continue to dominate social media, and prevent (or buy out) any startup taking off.  SnapChat has an entrenched position in the highly desired teen market, which FB can't attack - no matter what new functionality FB comes up with, people will stick with an existing social network because their friends are on it.  But FB is preventing Snap from expanding.  So Snap either needs to monetize its existing user base before it bleeds to death, or find some way to completely re-invent the market - something completely different, like what the iPhone did to the mobile phone market.

My Short Bet

The story is put very simply here: 80% of Snap's free float has been locked up, but becomes tradable at the end of July till end August:

I'm short: bought 22 SNAP Put options last night @ 2.18 each.  Strike $15, 19th Jan 2018 expiry.  Breakeven if Snap goes down to $12.82.  Total cost USD 4,815.75.  This trade has 100% downside (for me) and roughly 120% upside (if SNAP goes to $10).

  • The Q2 earnings release is due between the end July lockup expiry and end August one.  Snap may pull a rabbit out of their hat, e.g.: make more advertising deals, recount DAUs, or recognise some revenue.  Its possible that, since they know about the lockup time, they planned this and put all their bad news in the previous 1Q results (kitchen sink).
  • This is a consensus trade - every man and his dog is short SNAP.  Any good news will cause a short squeeze.
This is a speculative trade, using 1% of my capital.  Might go to zero.

Overall, the best you could say about SNAP as a company is that its overvalued and theres a lot of growth built into the price.


Good look at Snap's strategy from Stratechery:

Sold UUP

Sold all my UUP at 24.875 for a total of USD 19890.29.  The trade wasn't working, and since currencies don't move much, its pointless to keep so much capital tied up in it. Total loss was USD 891.30.

Currently I have:

Some of my positions are included as 'Speculative Positions".  They are risky 1% positions that may go to zero, but have a potential 3X payoff.  Most of them are from newsletters paid for and are not described in blog posts.  So are any unnamed stocks.

Saturday, July 1, 2017

Bits and Pieces

US natural gas prices to fall

  • due to increased production (link 1) (link 2)
  • associated with oil production, and new pipelines from Marcellus/Utica around 2017/18.
I like TimeOnTarget's comments on SA for following the US Natural gas market.  A good place to start for anyone looking to learn about it.  Have to look at demand, supply and pipelines.  US gas prices are cheap due past discoveries in the Marcellus/Utica, which was already served by pipelines.  At some point it may reach the stage where every producer is losing money, and things can only get better. COG seems the cheapest producer, but pipelines are the key.  Prices vary greatly across the country depending on that.  Not sure if I'll ever make a bet on this industry, but its useful to have a view on US Natural gas for anything related, such as chemicals, fertilizers, solar/nuclear, and so on.


North Korea

Has been out of the news for a while.  GeopoliticalFutures thinks that:
I don't know how a war would affect the markets:
  • The war would be very bad for South Korea, due to Seoul being within range of North Korean artillery, which cannot be easily neutralized
  • I believe the markets are not expecting a war now, but I think the war would be short, maybe 1-6 months.  No telling what the markets would do if they expect that.  They may even go up a few days after the war starts.
  • Long term, reunification would be costly - in economic terms - worse than the German reunification in 1989.
  • I don't know any way for retail investors to buy Korean stocks anyway.



Although ZH is unreliable, its worth keeping in mind the risks to the market if Trump changes back to his old election self again. USD up if it happens.