Keeping Up With Growth

One of the simplest ways to measure the success of a business is to look at its Earnings and its Growth. Over the long-term, every successful business has one thing in common: Revenue + Earnings Growth Drives Stock Price! And while there are examples of successful companies having lots of one but none of the other (think Uber, Lyft, Airbnb, etc.), expectations are that such young businesses will eventually make a lot of money. The stage of a business and the industry play an important role in that respect.

Some of the best leaders of all times have one thing in common — they are capable to maintain strong growth even at large scale. During his second term at Apple, Steve Jobs grew the business from just selling computers, to selling iPods, songs, laptops, phones, apps, iPads, TV boxes, etc.

In 2000, an “expert” could have argued that the total market for personal computers is a few billion dollar, therefore Apple could only be worth tens of billions in a best case scenario. Today, Apple is worth $650 billion and is the top candidate to hit a Trillion dollar market value over the next year(s). (Disclosure: GSV owns shares in Apple)

Another great example for sustainable growth at scale is Facebook. In 2006, the Wall Street Journal described Mark Zuckerberg as stupid (i.e. an idiot) for not accepting Yahoo’s $1 billion acquisition offer. At that time, Facebook was two years old, had 10 million active users growing at about 100% year-over-year, and had zero revenue. For Zuckerberg, Yahoo’s offer was a no brainer…NOT SELLING.

Zuckerberg had a strong vision for Facebook. He had a plan and was and is capable of executing! Fast forward to 2015 and Facebook is the largest community in the World with 1.5 billion monthly active users, $15 billion in revenue, and nearly $3 billion in annual net income. Now worth $265 billion, Facebook could buy Yahoo if it chose to. (Disclosure: GSV owns shares in Facebook)

Source: Facebook

Most impressively, Facebook continues to be on a growth spurt even at such scale. In the second quarter, revenue growth was +39% and its 968 million daily active users grew by +17%. While earnings growth was a soft +16%, it is expected to accelerate as the company is currently in investment mode.

Some of the key drivers behind Facebook’s growth engine are its recent acquisitions of WhatsApp, Instagram and Oculus. In each case, many “experts” criticized the high price Facebook paid (WhatsApp for $22 billion, Instagram for $1 billion, and Oculus for $2 billion). But in retrospect, these purchases ended up being cheap given their impact. WhatsApp has almost 1 billion active users (and it has replaced texting), Instagram has over 300 million active users (and has become THE place where users share pictures, videos, and follow celebrities), and Oculus has the potential to become the leader in virtual reality.

Snapchat and Pinterest are the two most valuable private companies in the Social Media space, worth $16 billion and $11 billion, respectively. While they’ve been able to attract large investments and high valuations from strong investor groups, the two startups need to prove their value now.

In May, Snapchat announced that it had 100 million daily active users. The company has not disclosed its monthly active users recently, but assuming its DAUs/MAUs ratio is somewhat similar to Facebook’s 65% ratio, we can expect that it has ~180 million monthly active users today. Snapchat last reported in August 2014 that it had 100M MAUs. Snapchat has yet to announce the 200 million milestone… Maintaining strong user growth will continue to be a key challenge, especially given that revenue is minimal.

Last week, Snapchat announced that it is starting to charge user $0.99 for replaying already viewed (and disappeared) snaps. While this might drive some revenue, it does not strike me that many users will chose this option. Why pay when one can take a screenshot of a snap?

Pinterest, meanwhile, just announced it crossed the 100 million monthly active users mark. In June last year, estimates pointed that Pinterest had about 70 million monthly active users. If the numbers are correct, it implies that annual user growth is just 30–40% — a bit low, in my opinion. With aspirations to become the leading platform for social e-commerce, Pinterest will need to accelerate its pace and grow its user base. Instagram is also focusing on integrating e-commerce into its platform and might emerge as a strong competitor.

As published in this week’s A 2 Apple: https://gallery.mailchimp.com/1b706b2cf8f39c9d033cc39b8/files/A_2_Apple_9_20_15_01.pdf

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