Scott Adams is Wrong about Snapchat

My Snapchat Prediction

Snapchat’s Future

Snapchat continues to dive (SNAP)

This premature cerebration of Snapchat’s stock price decline reminds me of 2012 when Facebook stock fell from $38 to as low as $20, and everyone was certain that Facebook was a bubble and doomed, and now it’s at $139.

Bought some Snapchat shares in the low 20’s…target $100 (although I think targets are almost meaningless; expected payouts matter more, as I will describe). Nearly everyone between the ages of 15-30 uses Snapchat, and they aren’t going to defect and stop using the service, as many are predicting. The major categories are ‘boring’ social networking for older people (Facebook), and then for the younger demographic there’s Instagram (owned by Facebook), What’s App (also owned by Facebook) and Snpachat. All categories and demographics are covered just by owning Snapchat and Facebook stock.

Twitter fizzled because its growth stalled and they were unable to sufficiently monetize the users. Twitter has low engagement and too many fake users. Many millennials who used Twitter in 2009-2012 have moved to Instagram and Snapchat and don’t use Twitter as often. I don’t see a similar fate for Snapchat. Of course, I have no way to be certain about this, but the potential payoff is huge should Snapchat become as successful as Facebook. If Snapchat fizzles like Twitter, the stock price will probably settle at $10, a loss of 50% from the present price. But Facebook is already a $400 billion company. If Snapchat becomes just 1/4 as successful as Facebook, Snapchat goes to $100 [1], a gain of 400%. Assuming 50% odds of either, the expected value is $60. This is return on capital of 200%. These are much better payouts than in Las Vegas.

[1] At $20/share, Snapchat is worth $20 billion.