(Recode.net) The one chart that should scare Snapchat investors

The one chart that should scare Snapchat investors
User growth has been rapidly decelerating.

Snap’s IPO filing reveals a startling trend: While Snapchat, its flagship product, is still growing — as measured by daily active users — its growth has rapidly decelerated over the past year.
Specifically, Snap’s quarterly gain in average DAUs decreased to five million during the fourth quarter of 2016, down from a peak of 21 million in the second quarter and 10 million in the third quarter.
In its filing, Snap depicts its user growth in a bar chart of its average DAUs, which shows “up-and-to-the-right” growth, albeit at a slower rate throughout 2016.
But here’s another way to look at it, just isolating the growth. It’s easier to see the deceleration this way.

In its filing, Snap notes that its growth in December was better than the first two months of the fourth quarter, when “flat growth ... was primarily related to accelerated growth in user engagement earlier in the year, diminished product performance and increased competition.”
Snap goes into greater detail about each of these issues. But the most interesting question is around competition. (Snap’s description: “We also saw increased competition both domestically and internationally in 2016, as many of our competitors launched products with similar functionality to ours.”)
Mostly, that means competition from Facebook-owned Instagram, which cloned Snapchat’s popular “Stories” feature in August, early in the third quarter, which is also when Snap’s momentum started to fall off a cliff.

So that’s the big question: Will Snap be able to use its ingenuity to re-accelerate the growth of its network over 2017? Or have Instagram and other competitors — such as Snow, an Asian Snapchat clone — effectively neutralized it?

(Recode.net) Snap looks like it’s Google Cloud’s biggest customer

Snap looks like it’s Google Cloud’s biggest customer
The soon-to-IPO company is on the hook for $400 million a year with Google — equal to the search giant’s estimated 2015 cloud revenue.

Snap Inc. is one of Google’s biggest cloud customers. The question is, just how big?

The startup, which has filed paperwork for an IPO, signed a $2 billion contract with Google last week that pays the search giant $400 million a year over the next five years.

That annual payment is roughly equivalent to the entire revenue Google’s cloud division was expected to bring in for 2015, as reported by The Information last July.

At the time, Snap’s business accounted for about 10 percent of Google’s $400 million cloud business, or about $40 million. If those figures are accurate, Snap’s cloud costs will have increased tenfold in two years.

If Google’s cloud business jumped by the same rate, that would put revenue from the line of business at $4 billion. That’s a big jump, but still a far cry from Amazon Web Services’ roughly $10 billion in revenue.

RBC Capital previously reported an estimated run rate revenue of $1 billion for Google’s cloud business, according to analyst Mark Mahaney.

But if Google hasn’t matched that growth rate, then Snap’s value to the search giant has only increased — it’s not only paying more, it accounts for a bigger part of Google’s cloud sales.

Google declined to comment for this post. If you have any insight, we’d love to chat.

>>> Barrons weekend update: Positive on AMD and VSTE; cautious on CMG and Snapch

Barrons weekend update: Positive on AMD and VSTE; cautious on CMG and Snapchat 

* Cover story: Shares of CMG look cheap compared to a year ago, but investors should be cautious: boosting sales and luring back lost customers could involve greater long-term sourcing and marketing costs; A healthy return for investors would require the company to surpass past growth estimates. 

* Features: 1) Cautious on Snap: As the company prepares to go public, the risk is that it will be more like TWTR and less like FB; it is nowhere near break-even, and is likely to incur losses well into the future and face slowing growth-and investors would be wise to pass; 2) Positive on AMD: Despite big technological strides during the past years, company has failed to gain ground on rival INTC, but that could change under new chief Lisa Su, who has streamlined the business; 3) Positive on VSTE: Shares of Dallas-based energy company "offer an appealing play on the depressed electric-power market in Texas, and trade at a discount to rivals CPN, DYN, and NRG; 4) Story on the healthcare challenges facing retirees says longevity is the biggest driver of total healthcare costs, meaning healthy retirees end up with higher lifetime costs; 5) A look at what people need to know about enrolling in Medicare, a process that can be complicated and entail heavy penalties if they wait too long.

* Trader: Snap's IPO should concern the film, television, and publishing industries, because it points to the growing popularity of consumption that's more about a burst of activity and quickly competing a task rather than spending the time required to read or watch a movie. 

* Trader: Many investors seem to believe the next market move will be higher and that they'll see a downturn before it hits, but that may be presumptuous, says MS equity strategist Adam Parker; After outperforming the market in 2016, value stocks have stalled so far this year, but investors have good reason to be confident about a rebound; The same forces helping banks should help insurers, and many insurances stocks appear cheap compared to those of banks; "The drop in retail stocks make them a tempting buy," but investors should be careful about jumping into the sector. 

* Interview: Ed Yardeni of Yardeni Research said he is giving President Trump the benefit of the doubt, and hopes the new administration will implement good policies and jettison bad ones. 

* Profile: James Michal, co-manager of the Guggenheim Macro Opportunities fund; the fund has delivered 6% annual returns and can own virtually any kind of fixed income, as well as equities, currencies, and alternative investments (top five fixed-income holdings: asset-backed securities, bank loans, nonagency mortgage-backed securities, high-yield corporate bonds, commercial mortgage-backed securities). 

* European Trader: "The European banking sector is no longer the investment minefield it was even six months ago, but careful stock-picking remains the order of the day" (Positive on BBVA, ING). 

* Asian Trader: Asian stocks could drop 10% on the Trump administration's protectionist moves, and lesser tail winds from commodity prices; unless commodity prices rally, Asian earnings growth could fade. 

* Emerging Markets: What will ultimately weigh on the dollar, and therefore emerging-market assets, will be policy, not comments from Donald Trump or other politicians. 

* Commodities Corner: "OPEC's decision to dial back oil production is pushing crude prices higher and breathing new life into the U.S. oil patch," and prices could hit $55-65 this year. 

* Streetwise: Donald Trump's promise to cut taxes, spend on infrastructure, and repatriate foreign cash should boost the U.S. economy, and the currency-but a stronger dollar won't help the manufacturing sector.

WSJ : Why Snapchat Is the New TV

Why Snapchat Is the New TV
Snap Inc. wants to be the next Facebook—but its messaging app gives millennials a ‘lean back’ experience that is more like watching television

In the registration filing for its initial public stock offering, Snapchat parent Snap Inc. said its competitors range from Google, Apple and Facebook to popular Asian messaging apps such as Kakao and Line. But it didn’t list any traditional media companies like Fox or Viacom.

That’s odd, because Los Angeles-based Snap is, fundamentally, a burgeoning media company. Snapchat may be a messaging app, but in many ways, it’s also a new kind of television.

The parallels with TV start with how people use Snapchat. In the filing, made Thursday, Snap reported its users view 10 billion videos a day, more than the 8 billion video views a day last claimed by Facebook in late 2015. It’s important to note that on Snapchat, “videos” are clips that are never longer than 10 seconds. They’re usually strung together into “stories” that often stretch several minutes.


It’s hard for people who aren’t teens with a million Snapchat friends to grasp, but once your network is sufficiently big, viewing stories can feel like the “lean back” experience of watching television, as opposed to the “lean forward” experience of engaging on social media. Snapchat’s swipe-based interface makes it easy to mindlessly cruise through the barrage of friends’ stories and messages, and it even has a mode where you can play through all the stories you like without interruption. It’s reality TV, starring people you know.

Since there’s no social feedback, the way there is on Facebook and Instagram, the pressure to judge and possibly share everything you see is off.

“People are using Snapchat as their down time,” says Mike Germano, chief digital officer of millennial-focused media company Vice and chief executive of Carrot Creative, a Vice-owned agency that creates ads for major social platforms. “In an age when if you look at your Twitter and Facebook feed and it’s depressing as all hell, Snapchat is this fun place where it’s a little bit of escapism.”

Snap uses actual humans to curate snaps from across the site into stories on anything of interest, ranging from scenes from the Coachella music festival to funny things grandmothers say. Content also comes from partnerships with celebrities and production studios that may split revenue with Snap, more like a traditional studio than a platform such as Facebook.

Comedy Central was a launch partner on the very first version of Snapchat’s Discover section, which allows media brands, from magazines like Cosmo and Complex to news outlets like CNN and, yes, The Wall Street Journal, to create curated stories of their own. Each ever-refreshing collection of highly produced, video- and animation-rich stories feels like its own TV channel.


“I kept referring to it as the millennial skinny bundle,” says David Bernath, general manager of Comedy Central. A “skinny bundle” is the growing trend in cable toward selling consumers a handful of channels for less than they’d typically pay for cable TV service.

“Twenty years ago you would create MTV2 or VH1 Classic,” says Mr. Bernath, but now that content goes to Snapchat.

Snapchat is also a great deal like television in its business model. Video ads that appear in the app are more like TV commercials than the pre-roll advertising that has failed to generate profit at YouTube. One reason is sheer quantity. While YouTube limits itself to 15- or 30-second pre-roll ads in front of every third video or so, Snapchat can cram three under-10-second ads into every one-and-a-half to two-minute story—without annoying viewers.

How does Snapchat achieve such density without serious backlash? The brief ads are often actually fun to watch. They have to be, since all Snapchat’s ads can be instantly skipped. Snap charges less for skipped ads than ones that are viewed, and full payment only comes when a user swipes up to see the ad in its entirety. Those features make them perfect for the kind of advertising that aims to increase brand awareness—in other words, TV ads.

Taco Bell, an early advertiser, knew from the beginning that “this level of engagement was a total game changer,” a spokesman says, adding that it plans to continue to advertise on Snapchat.

In a new form of product placement, advertisers can even customize Snapchat’s augmented-reality selfie “lenses.” Taco Bell says it worked with Snapchat on its Cinco de Mayo taco head lens for nearly six weeks; the feature garnered 224 million views.

When Twentieth Century Fox used superpowered lenses to promote the movie “X-Men: Apocalypse” last year, the campaign yielded 298 million views, according to Snap.

As advertisers take notice of Snapchat’s 160 million or so daily users, Snap has the opportunity to capture a portion of the $71 billion a year that goes to television commercials. Nielsen reported a 37% decline in the amount of time spent viewing television among 18- to 24-year-olds, Snapchat’s core demographic, between 2010 and 2016. And IDC projects that by 2020, advertisers will spend more money on mobile than they will on TV.

Snapchat reported $404 million in revenue in 2016, and aims to hit $1 billion in 2017. But that growth must be built primarily atop better ad targeting and deeper engagement from users, since it isn’t at all clear Snapchat will grow its user base the way Facebook did. Snapchat’s user growth actually slowed in the fourth quarter of 2016.

Snapchat is the most important social network for teens and people in their early 20s, according to a survey by Piper Jaffray. But investing in Snap means weighing its attraction against a litany of unknowns.

Robust competition from Facebook is foremost among them. The company has been rapidly copying Snapchat’s features in both Instagram and Messenger. Facebook also wants to be the next TV, and is spending some of its massive (mobile) ad revenues on original programming and new apps for set-top boxes.

Then there’s the concern that the Snapchat app is unlikely to ever capture a critical mass of users over 30. Even loyalists could age out of the app as they reach a point when social display and fear of missing out—two key drivers of Snapchat engagement—are no longer motivating forces. And Snapchat could be disrupted by whatever hip new app or service captures the attention of the next generation.

Of course, that hip new app could come from Snap Inc., which has maintained a furious pace of innovation in its core product, rolling out new features—and even hardware—at a rapid rate.

“Unlike Twitter, Snapchat is continuing to advance and deepen what you can do on mobile, and that’s attracting users and brands,” says Catherine Boyle, an analyst at eMarketer. An IPO adds more fuel to that fire.

FT : London gold traders to open vaults in transparency push

London gold traders to open vaults in transparency push
Bullion group to provide data for first time on how much gold is traded in Square Mile

London’s centuries-old gold market is to usher in an era of transparency with plans to reveal how much bullion is held in vaults in and around the city, including those controlled by the Bank of England.

The move is being led by the London Bullion Market Association, which will provide data for the first time on how much gold is traded in the Square Mile.

Some of the world’s biggest banks are trying to shift trading of the precious metal on to an exchange. By providing greater transparency and data, the LBMA, whose members include HSBC and JPMorgan, hopes to head off the challenge and persuade regulators that banks trading bullion should not have to face more onerous funding requirements.

In London most gold is traded “over-the-counter”, or directly between buyers and sellers, so there is little data on how much changes hands. Estimates from the LBMA suggest that about $26bn of gold is traded daily in the City but there are no official figures.

The LBMA plans to release the monthly vault data on a three-month lag, according to people involved in the process. It will show gold bars held by the BoE, the gold clearing banks, and those operated by the security companies such as Brink’s, which are also members of the LBMA, according to a person involved in setting up the programme. The LBMA declined to comment.

London’s vaults hold billions of dollars of gold, one of the largest stashes. Vaults owned by HSBC are used to back the largest gold exchange traded fund, the SPDR Gold Shares.

The vaults, in secret locations within the M25 orbital motorway, are normally equipped with extreme security measures such as blast doors and fingerprint sensors that detect the flow of blood to prevent the use of severed digits. Access is rarely granted to members of the public.

An estimated 400,000 large gold bars are stored at the BoE’s vaults in the City, worth some $150bn, according to the LBMA. The BoE holds the most gold because it acts as a custodian for the holdings of other central banks.

Last year a gold vault owned by Barclays, which can house $80bn of bullion, was bought by China’s ICBC Standard Bank.

Since the financial crisis, policymakers have been pushing for financial instruments to be traded on exchanges and cleared through centralised systems. Last year the London Metal Exchange and the World Gold Council announced plans for a gold futures contract backed by a consortium of banks including Goldman Sachs and ICBC.

HSBC and JPMorgan, London’s biggest bullion banks, are backing the initiatives by the LBMA to improve transparency.

Reuters - Facing new challenger, Merkel rallies troublesome Bavarian ally

Facing new challenger, Merkel rallies troublesome Bavarian ally

Chancellor Angela Merkel meets her Bavarian allies on Sunday for two days of talks aimed at rallying their troubled conservative alliance to take on the re-energised Social Democrats in a September election she expects to be "tough like no other".

Horst Seehofer, leader of the Bavarian Christian Social Union (CSU), sister party to Merkel's Christian Democratic Union (CDU), has been a thorn in her side for much of the last two years, pressing for a cap on migrants that she is unwilling to support.

But a spectacular revival in the Social Democrats' fortunes, after they nominated former European Parliament president Martin Schulz as party leader last week, is forcing the conservative "Union" allies to bind together if they are to hold on to power.

"Seehofer has to end his onslaught against Merkel if the Union wants to have any chance at all," said Forsa pollster Manfred Guellner.

A survey by another pollster, Infratest dimap, on Thursday showed support for the centre-left Social Democratic Party (SPD) jumped by 8 points to 28 percent, the highest since the last federal election in 2013, following Schulz's nomination.

The CDU/CSU alliance remained ahead on 34 percent, but worryingly for Merkel the poll showed Schulz beating her comfortably in a theoretical head-to-head contest.

Seehofer's prime concern has been holding onto the CSU's absolute majority in Bavaria in a regional election in 2018, when he is worried about losing votes to the anti-immigration Alternative for Germany (AfD).

However, the revival of the SPD is focusing attention in the CSU, which needs a strong CDU to retain the national clout that gives it sway in Bavaria. Likewise, Merkel needs the CSU to perform well in the federal election if she is to retain power.

The fact that Merkel is carving two days out of her schedule to spend on the meeting in Munich underlines the importance she places on improving relations between the allies.

Seehofer, who has been relentless in his criticism of her decision in 2015 to open Germany's doors to a wave of migrants from the Middle East, must now convince Bavarians she is the right candidate for chancellor in the Sept. 24 election.

"We are going to have a lot of convincing to do in this election with our base and in the community," said Markus Soeder, Bavaria's finance minister.

Another CSU lawmaker said he was confident Merkel's experience and role as a pole of stability in uncertain times would get voters behind the conservative allies, but that they might not resolve all their differences at the Munich meeting.

"The CDU and CSU will come together - but perhaps not in February," he said, speaking on condition of anonymity.

Reuters - U.S.-backed Syrian force in new phase of Raqqa assault

U.S.-backed Syrian force in new phase of Raqqa assault

An alliance of U.S.-backed militias started a new phase of its campaign against the Islamic State-held city of Raqqa on Saturday, aiming to complete its encirclement and sever the road to militant strongholds in Deir al-Zor province.

The Syrian Democratic Forces (SDF) said in a statement the action was being undertaken with "increasing support from the (U.S.-led) international coalition forces" through both air strikes and backing from coalition special forces on the ground.

The SDF, which includes the powerful Kurdish YPG militia, launched its multi-phased campaign aimed at encircling and ultimately capturing Raqqa in November. It is the main U.S. partner in the fight against Islamic State in Syria.

Fighting also raged between Islamic State and Syrian government forces northeast of Aleppo, where the Syrian army is nearing the IS-held city of al-Bab, risking a confrontation with Turkish forces that are fighting the group in the same area.

The Syrian army captured a town from IS to the south of the city on Saturday, while the Turkey-backed forces captured one to its east, the Syrian Observatory for Human Rights reported.

Islamic State is being fought in separate campaigns in Syria by the U.S.-backed SDF, the Turkish army and the Syrian rebel groups it backs, and the Syrian army with help from the Russian air force and Iranian-backed militia.

A SDF commander told Reuters the forces had so far advanced a few kilometres (miles) in the latest phase, which aims to capture areas to the east of the city, including the highway linking it to Deir al-Zor province.

Deir al-Zor, which is almost entirely in Islamic State hands, stretches all the way to the Iraqi border. A Kurdish military source told Reuters on Tuesday that the goals of this phase included capturing the main highway.

Several hundred U.S. special forces soldiers have been supporting SDF operations against Islamic State in northern Syria. France said in June that its special forces were advising rebels in the same area.

Representatives of the U.S.-led coalition looked on as the statement declaring the start of the new phase was read out in a village in northern Raqqa province.

PHASE THREE

This is the third phase of the Raqqa operation. The first phase targeted areas north of Raqqa city. The second, targeting areas to the west of the city, is ongoing, with SDF forces yet to capture the Islamic State-held Euphrates dam.

Air strikes on Friday in Raqqa hit two bridges over the Euphrates river, hindering movement from the city southwards and killing six IS militants, the Syrian Observatory for Human Rights reported.

U.S. support for the SDF has been a point of tension with NATO ally Turkey, which views the YPG as an extension of the Kurdistan Workers Party (PKK), a group that has fought a three-decade insurgency in Turkey.

The United States says it is providing training and material support only to Arab elements of the SDF. It supplied them last month with armoured vehicles for the first time to help in the Raqqa campaign.

U.S. President Donald Trump signed an executive order last week requesting the Pentagon, joint chiefs of staff and other agencies to submit a preliminary plan in 30 days for defeating Islamic State.

One key decision awaiting the Trump administration is whether to directly provide weapons to the YPG.

The U.S.-backed campaign against Islamic State in Syria has focused mostly on northern parts of the country. Turkey launched its own offensive against the group along the border in August, deploying its army in support of Free Syrian Army rebel groups.

The Turkish campaign, which also aims to prevent further expansion of YPG control, has been encountering fierce Islamic State resistance in al-Bab since December.

Syrian government forces have staged a rapid advance of their own towards al-Bab in the last two weeks.