Northeastern State University Snap Rise and Fall Article Discussion

Northeastern State University

Question Description

I don’t know how to handle this Business question and need guidance.

read the two articles and answer the questions

  • How strong was Snap’s competitive advantage when it went public?
  • Why did Snap lose its competitive edge?
  • How is technology affecting the money transfer industry?
  • How do these changes affect the competitiveness of incumbents such as Western Union?
  • How is Western Union responding and how should it respond to such disruption?

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Snap’s Rise and Fall: How a Big, Splashy IPO Prompted the Doubters to Keep Mum Bankers and investors in Snap’s IPO didn’t want to risk losing a piece of the potentially blockbuster deal Eight months after Snap’s IPO, after a third weak quarterly earnings report in a row, its shares are close to 25% below their offering price. PHOTO: ASSOCIATED PRESS; ILLUSTRATION: WSJ By Corrie Driebusch, Maureen Farrell and Georgia Wells Nov. 9, 2017 12:39 pm ET Snap Inc. SNAP +3.74% kicked off the planning for its hotly anticipated initial public offering last year with a brief address from its co-founder, Evan Spiegel, accompanied by a series of nonnegotiable conditions. Snap wouldn’t provide financial guidance on expected earnings. It would bill itself as a camera company. And it would sell shares with no voting rights, leaving the cofounders with near-total control of the company. Present at the October 2016 meeting near Snap’s main office in Venice, Calif., were underwriters from about a half dozen of Wall Street’s largest firms, who had gathered in anticipation of the biggest U.S. tech initial public offering in years. Snap’s presentation damped some bankers’ enthusiasm. But it didn’t stop them from pushing ahead. Interviews with dozens of people close to Snap’s listing, including bankers, investors, analysts and current and former Snap employees, show that many had concerns at the time, especially about the growth prospects for the maker of the disappearing message app Snapchat. But, in a fever for a big listing—and with about $98 million in fees at stake—they allowed Snap to set the terms. The shares listed on March 2 and soared 44% on the first day of trading. Eight months later, after a third weak quarterly earnings report in a row, Snap shares are wallowing more than 25% below their offering price. On Tuesday, Snap reported its quarterly loss had more than tripled, sending shares down 18% over the following two days. Its previous two quarterly reports had also made clear revenue wasn’t meeting expectations, user growth was slowing amid fierce competition from Facebook Inc. and a high-profile product launch had fizzled. Disappearing Value Snap's share price has tumbled as user and revenue growth have weakened. Source: FactSet Investors and bankers had hoped Snap would thrive as a public company and awaken what had been a largely dormant tech IPO market. Instead, the company’s struggles have further strengthened the impulse for highly valued startups to opt for private capital. After the earnings report on Tuesday, Mr. Spiegel said in a conference call with analysts that Snap would overhaul the Snapchat app. He also acknowledged he misjudged demand for Spectacles, the video-recording sunglasses that had a buzzy launch a year ago. Snap said it recorded $39.9 million in charges in the quarter, primarily because of excess Spectacles inventory. On Wednesday, Snap disclosed that Chinese internet giant Tencent Holdings Ltd. had recently bought a 12% stake, adding to an earlier stake and becoming one of its largest shareholders. Mr. Spiegel has been upbeat about the company and its IPO recently, saying that going public was the right thing for Snap at the time. He also said he has learned some lessons. “I think one of the things I did underestimate was how much more important communication becomes,” he said last month during the Vanity Fair New Establishment Summit in Beverly Hills. “When you go public, you need to explain to a huge new investor base how your business works.” Morgan Stanley tech banker Michael Grimes, shown at a WSJ conference in 2016, worked on Snap’s IPO. PHOTO: NIKKI RITCHER FOR THE WALL STREET JOURNAL Competition was fierce for the Snap deal. Morgan Stanley won the lead underwriting job—tech banker Michael Grimes rented an apartment near Snap’s main office. Goldman Sachs Group Inc. also secured a top spot, along with J.P. Morgan Chase & Co., Deutsche Bank AG , Barclays PLC, Credit Suisse Group AG and Allen & Co. Stock-underwriting activity was in the doldrums in 2016—money raised by U.S. IPOs was the lowest since 2003, according to Dealogic—and banks were hungry for fees. The last high-profile technology offering had been Chinese e-commerce giant Alibaba Group Holding Ltd. ’s U.S. listing in 2014. Many of the fastest-growing tech startups are remaining unlisted, putting them out of reach for the average investor. At least 160 venture-backed companies in the private market are valued at more than $1 billion, compared with 45 at the start of 2014, according to Dow Jones VentureSource. Investors viewed Snap’s offering as a chance to get into a young and promising company. Founded in 2012, Snapchat was one of the most popular apps in the U.S.; it now has about 178 million global daily users. It makes money from advertisers who pay to reach its coveted audience of young people. Growing PainsSnap's quarterly change in daily activeusersTHE WALL STREET JOURNALSource: the company %2014’15’16’1705101520253Q 2017+2.89% In 2013, the company rebuffed an acquisition offer from Facebook worth about $3 billion, eventually turning the giant into a potentially lethal competitor. In August 2016, Facebook launched Instagram Stories, a product similar to a Snapchat feature that lets users create a series of videos and images that disappear after 24 hours. The product now has more than 300 million daily active users, surpassing Snap. The Facebook launch coincided with a slowdown in Snap’s user growth. The IPO filing said user growth had slipped to 7% in 2016’s third quarter, compared with 17% in the second quarter. On Tuesday, Snap reported user growth in the most recent quarter had fallen to 2.9%. Ahead of the IPO, concerns had been growing about the lack of information on how Snap would defend against competition. Sean Stiefel, manager of the Navy Capital Opportunities Fund, was concerned before the IPO about Snap’s competition but didn’t want to miss out on the investment. PHOTO: MICHAEL BUCHER/THE WALL STREET JOURNAL At a company all-hands meeting in January, a Snap employee said the company would reach a saturation point in the U.S., according to a person present at the gathering in an airplane hangar in Santa Monica, Calif. The employee wanted to know about the company’s growth strategy overseas, since Facebook was imitating many of Snap’s features and signing up droves of users in Asia and India, the person said. Mr. Spiegel’s response: People feel more free to express themselves on networks of close friends, according to a person familiar with the meeting. The CEO has dismissed ideas that rely heavily on data, according to people who have worked with him. He prefers to study the experience of users for cues on revisions and new features, some of the people said. On Feb. 2, Snap filed with the Securities and Exchange Commission. In its paperwork, the company listed Instagram Stories as a potential risk to its business. It said revenue was $404.5 million in 2016, up nearly sevenfold from a year earlier, but said its growth in daily active users was slowing. Three weeks later, several hundred analysts and portfolio managers crowded into a ballroom of New York City’s Mandarin Oriental hotel to hear executives pitch the IPO and answer questions. Mr. Grimes, the Morgan Stanley banker, introduced Mr. Spiegel as a “once-in-a-generation” founder, according to people present. Snap IPO: Focus on the Founders' Control YOU MAY ALSO LIKE UP NEXT 0:00 / 3:45 Snap IPO: Focus on the Founders' Control From the archives, March 1, 2017: When Snap Inc. goes public, Snapchat co-founders Evan Spiegel and Bobby Murphy will retain control of more than 90% of the company’s voting rights. WSJ’s Shelby Holliday looks at how Snap’s rare share structure stacks up against other tech companies. Some people who attended the lunch said they wanted to hear from Mr. Spiegel on many of their pressing business questions, including the company’s plans for generating advertising revenue, but that chief strategy officer Imran Khan generally fielded them. Investors said Mr. Spiegel focused on his vision instead of the numbers, and that their questions were answered with generalities. Sean Stiefel, manager of the Navy Capital Opportunities Fund, was among those at the Mandarin hotel. Mr. Stiefel said he had some concerns about the company—top of his mind was that when he went home at night he found himself checking too many social-media platforms, including Facebook, Instagram, Twitter and LinkedIn, as well as Snapchat. He said he worried about how Snap would be able to keep up. Still, Mr. Stiefel didn’t want to miss out on the investment. When he called his Goldman Sachs banker to tell him he wanted to buy shares in the deal, he added half-jokingly that his order was good “for the first two price-range increases”— expecting the offering to have so much demand that the initial price would ratchet up. “People love the space, and it isn’t like there’s a new entrant every quarter or every year even,” he said in February. A major concern was Snap’s plan to sell shares that carried no voting rights, according to investors and bankers who attended roadshow events. Mr. Spiegel and co-founder Bobby Murphy would retain roughly 90% of voting control once the company went public. Struggling for Growth Snap, which listed its shares in March, hasn't met expectations on revenue, and its losses have expanded. Source: the company One banker involved in the IPO said he thought the lack of voting shares and other decisions could imperil the company’s standing with investors, possibly hurting its stock price. But he said he didn’t articulate that to Snap’s executives for fear of jeopardizing his spot on the prized deal. The lack of voting shares translates to an “unaccountable management team,” Michael Pachter, an analyst who covers the company for Wedbush Securities, said last month. “If investors don’t like the direction a company is taking, they can’t do anything about it.” Index provider S&P Dow Jones Indices said July 31 it would bar newcomers with multiple classes of shares from some of its indexes over concerns about investors getting limited or no voting rights. That means Snap won’t be eligible to be included in the benchmark S&P 500, which a company of its market cap could have expected to be included in as soon as 12 months after its IPO if it reported steady profits. That means its stock price won’t benefit from the forced buying from the popular index funds that track it. Some advisers to Snap ahead of the listing also privately questioned the company’s decision to describe itself in the IPO filing as a camera company, versus a socialmedia company. They said that might imply to investors that the company was going to focus on hardware, such as Spectacles, rather than the Snapchat app. One of Snap’s offices in Venice, Calif. PHOTO: GEORGIA WELLS/THE WALL STREET JOURNAL Snap priced the shares at $17 apiece. On March 2, Snap’s first day of trading, the stock closed at $24.48, the biggest one-day pop for a U.S.-listed IPO that raised at least $1 billion in more than two years, according to Dealogic. Shares remained buoyant until May. Snap’s first quarterly report showed user growth slowed to 5%, sending shares tumbling 20%. By early July, shares had fallen below the IPO price and have never recovered, including two big swoons when S&P faulted the multiple classes of shares and when Snap released a second quarterly report of disappointing earnings in August. “I can’t remember another time when a company gave as little direction as Snap did,” said Sam Kemp, senior internet research analyst at Piper Jaffray & Co., which wasn’t involved in the IPO. He initiated coverage on Snap in March at $23 a share, but has since lowered his price target to $12.50. Mr. Kemp said he covers other tech companies that give limited guidance, such as Facebook and Amazon.com Inc. Facebook, for example, gives regular guidance on operating and capital expenses rather than annual guidance for revenue and profit, while Amazon releases its outlook for revenue and operating income, but doesn’t forecast earnings per share. Snap’s chief strategy officer Imran Khan at an advertising conference in New York last year. PHOTO: SLAVEN VLASIC/GETTY IMAGES But those companies “are extremely established” and have demonstrated their ability to make money, he said. “Snap came in and immediately…tried to be one of those companies without having a defined track record.” In 2012, Facebook’s stock closed below its IPO price of $38 a share on its second day of trading and failed to return to that level for more than a year. Early on, the social network faced questions about the utility of its ads, as well as privacy issues and concerns about its strategy in mobile devices. But the company went on to dominate the online advertising market along with Google parent Alphabet Inc., with its growing market share driving its stock higher. These days, the stock trades at around $180. In late September, Morgan Stanley CEO James Gorman said he would encourage investors to focus more on Snap’s business than its stock price. “Stop worrying about how the price trades for a few weeks,” he said at The Wall Street Journal’s Future of Finance event. Instead, he said he focuses on the long term. What the company has done so far is “extraordinary,” he said. Write to Corrie Driebusch at corrie.driebusch@wsj.com, Maureen Farrell at maureen.farrell@wsj.com and Georgia Wells at Georgia.Wells@wsj.com Fintech Startups Seek to Shake Up Money-Transfer Industry Remittance startups aim to reduce time, cost required to send money internationally by using the latest technology A Western Union symbol in Budapest. Western Union says many of its customers still prefer to use cash, and it would just be too costly for the startups to develop an on-the-ground network that could compete. PHOTO: OMAR MARQUES / SOPA IMAGES/ZUMA PRESS By Corinne Abrams December 19, 2017 MUMBAI—The race is on to become the top global app for international money transfers. Fintech startups including WorldRemit Ltd., TransferWise Ltd. and Remitly Inc. are pulling ahead of the pack of the dozens of companies trying to disrupt the remittance industry, using the latest technology to send money internationally. More than $600 billion is remitted world-wide every year, mostly by migrant workers from places like India, Mexico and the Philippines, who have traditionally had to deal with long lines and high fees to send money home. The startups are competing to build trust in their brands and the best transfer technology, using everything from digital wallets to Bitcoin in hopes of becoming the Uber or Airbnb of the remittance industry. Remittance Race As new players step into the market, the cost of sending money across borders is coming down. Source: World Bank WorldRemit is using fintech to take business from the traditional money-transfer giants like Western Union Co. WU +1.16% and MoneyGram International Inc., MGI 3.24% said Alix Murphy, director of mobile partnerships at the London company. “These are companies that have been operating in the same way for the last 30 years,” she said. The remittance market has long been a fragmented space, with banks, transfer specialists such as Western Union, and an informal and often illegal money-transfer system known as hawala vying for thin slices of the remittance pie. Despite the competition, sending money can often be expensive and time consuming. Differing regulations and bank procedures mean sending through banks often takes days, and fees can be confusing and high. Money-transfer specialists are generally faster but more expensive, and you often have to visit one of their outlets, which in places like Hong Kong often have long lines. Meanwhile, many of the people who depend on remittances often have no accounts to receive funds. The remittance startups say they are trying to change that by slashing the number of middlemen involved to make cash connections. “How is it that it’s free to send an email and it costs to send money?” said Kristo Käärmann, co-founder and chief executive of London-based TransferWise, which sends almost $2 billion a month. “Why does it have to cost much at all, when we’re moving bits and bytes around?” Sending money using the TransferWise app takes minutes—users enter their recipient’s account details and then pay by card or bank transfer. The company has bank accounts in multiple countries, so it simply takes the money into its account in the sending country and disburses it from its account in the receiving country, skirting around the traditional transfer system, which often requires rubber stamps from central banks and other authorities along the way. The differences in fees can be significant. Sending via banks alone costs about 11% of the money transferred on average; sending through a traditional money-transfer agent costs around 6%, while sending it via phone using mobile operators costs around 3%, according to the latest World Bank survey of remittance costs. Each company plans to go global, but many have strengths in the most heavily used remittance routes. Seattle-based Remitly is doing well in U.S.-to-Philippines remittances, for example, Singapore-based InstaReM is strong in Australia to India and TransferWise, the U.K. to Europe. There are signs of a shakeout, and front runners are emerging. TransferWise serves millions of people and has already grown into a unicorn with a valuation of $1.6 billion, after raising $280 million in a tough environment last month. WorldRemit earlier this month said it had raised a total of more than $220 million but wouldn’t disclose its valuation. Remitly has just raised $115 million at an undisclosed valuation. “We’re really excited about using it to completely transform this industry,” said Matt Oppenheimer, chief executive and co-founder of the company, which counts Jeff Bezos as one of its investors and sends around $2 billion a year. Banks and transfer agents say they are doing more online and through phones as well and the market is large enough to allow lots of new players. Western Union says it isn’t worried about the disruption. Many of its customers still prefer to use cash, and it would just be too costly for the startups to develop an onthe-ground network that could compete. People want to use a brand they are familiar with, said Khalid Fellahi, senior vice president of Western Union. “This is hard-earned money” they are sending home, he said. “There is a very high rating on trust.” Still, traditional money-transfer companies are also trying to stay on top of the latest technology. Western Union launched a digital division in San Francisco that is setting up partnerships with companies like Chinese messaging app WeChat and Facebook messenger. It invested in the Digital Currency Group, an investment firm focused on Bitcoin and Blockchain startups. Ant Financial Services and MoneyGram are hoping to merge, providing the Chinese fintech firm with access to an on-the-ground global agent network of 350,000 outlets in more than 200 countries and territories. In response, the remittance startups are trying to deepen their ties to their customers. San Francisco-based Xoom now allows its users to top up prepaid phone balances and pay bills in other countries. “We can present the balance they owe, or perhaps that their mother owes on her energy bill,” said Julian King, general manager at Xoom. “She no longer has to go out and take a bus, often in hot sun, to go wait in line and pay a bill.” Some of the startups are already using Bitcoin and Blockchain to cut time and cost. They don’t give Bitcoin ...
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Final Answer

Please let me know if you have any questions. Ty :)

1)How strong was Snap’s competitive advantage when it went public?
During the time that Snap’s competitive advantage went public it was not competitive at
all. In fact, in turn, businesses and corporations in all industries were turned away from some of
their financial decisions that Snap had made. For example, Snap would not provide any sort of
financial guidance to any earning that year. Snap would also bill itself as a camera company. For
many other entrepreneurs this was unbelievable and not a typical avenue that many new
businessmen resort to. They would sell shares with little or no buying rights. Therefore, the cofounders of the company would have total control of the company with little help from outside
agencies. The individuals whom were close to Snap’s listing such as bankers, investors, analysts
and current Snap employees, were very nervous about this decision and wondered what was
going to happen. It was a very risky call on his behalf. Afterall, there was over 98 million dollars
at stake, so this meant that they really had no choice but to allow Snap to set the conditions
(Dreibusch, Farrel & Wells, 2017).
2)Why did Snap lose its competitive edge?
Snap lost its competitive edge from one of the earlier social media applications in the
world: Facebook. The need for Snap to be a private company was not working in his favor. He
furthered continue to worsen the growth of the company by overhauling the snapchat application.
During this time, he also made a mistake like misjudging the demand for spectacles which were
hotly used in the application world especially for teenagers. I believe the major reasons that Snap
lost its competitive edge are twofold: the first reason mentioned above, tells us that that Snap
wanted to build private capital. He did not want to utilize other services that some other major
high-profile social media applications use. They did not want shareholders, bus...

Purdue University

Return customer, been using sp for a good two years now.

Thanks as always for the good work!

Excellent job

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