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Snap CEO Evan Spiegel Admits He Needs to Communicate With Investors Better

By Evan Niu, CFA - Oct 4, 2017 at 1:05PM

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It's not a good sign when Street analysts mock you.

Snap (SNAP 0.30%) CEO Evan Spiegel spoke at Vanity Fair's New Establishment conference yesterday. Among other topics, the 27-year-old CEO admitted that he didn't fully realize how important it was to communicate better with investors. Taking a private company public is a daunting task, and does come with considerably more regulatory oversight, especially when it comes to disclosures and corporate communications.

Here's the relevant excerpt from his interview with Walter Isaacson:

Our view is that we saw a tremendous benefit to transitioning our investor base from short-term venture investors to long-term investors, and ultimately getting currency, getting liquidity, because we really believe that's the best way to grow the company for the long term. I think one of the things I did underestimate was how much more important communication becomes.

And what's really interesting is when you go public, you really need to explain to a huge new investor base -- instead of having 10 investors you have 10,000 -- you have to explain how your business works. At the same time that you need to do that, there are also all these new regulations about what you can and can't say and how you can communicate. I think one thing we've been going through this year is learning how to best communicate the Snap story.

The admission comes after Spiegel has made several embarrassing gaffes on conference calls, which are some of the most important regular opportunities for investors to hear directly from management. It's worth remembering some of Spiegel's remarks that didn't sit well with investors.

Snapchat logo

Image source: Snap.

Stumbling out of the gate

Snap's first public earnings release was in May, and the related conference call didn't go so well. Spiegel downplayed competitive fears regarding Facebook that were (and are) absolutely legitimate concerns. When asked about Facebook seemingly wanting to "bury Snapchat," Spiegel instead emphasized the value of creativity on his company's platform and then made a bizarre analogy: "And I think at the end of the day, just because Yahoo!, for example, has a search box, it doesn't mean they're Google."

The problem with dismissing these concerns is that the numbers speak for themselves. Instagram Stories overtook Snapchat in daily active users (DAUs) less than one year after launch. His response was widely criticized, and Jim Cramer called Spiegel "arrogant" for brushing aside investor concerns.

An analyst then asked what Snap was doing to broaden the appeal of Snapchat, since the interface is unintuitive and Snapchat has trouble appealing to older demographics. Spiegel's response was contradictory, saying the service can be "universally appealing" but then essentially saying that Snapchat doesn't even try to cater to older demographics because of an experience he once had with his grandmother:

So I think, in terms of the way we develop products, the important thing to understand is that we are always trying to do our best to build products that are universally appealing. So the things like talking with pictures or telling stories, those are things we really believe are universally appealing. Although we tend to market our products directly to younger people because frankly, they are more interested in learning how to use new technology products. And that's sort of -- it was partly inspired by trying to teach my grandma how to use email. And she really preferred to just talk on the phone. I think now a lot of grandparents are using email, but 20 years ago, it was a little different. And so I think, over time that strategy has worked for us.

Then there was Spiegel's now-famous remark deriding competitors for "growth hacking," where social media companies generate engagement through push notifications. Many companies do this, including Snap, so the criticism came off as hypocritical. Making matters worse, Snap also refused to provide financial guidance, which is incredibly important for such a young company. Investors want visibility, but Snap won't provide it.

"I didn't even understand his response!"

The second earnings call went slightly better. The most embarrassing part came when an analyst inadvertently left their mic on. BTIG analyst Rich Greenfield referenced the growth hacking comment and asked Spiegel to clarify how Snapchat's push notifications don't qualify as "growth hacking" while rivals' do. Spiegel responded:

Yes. I think there are plenty of examples online. If you want to go for a Google. But I think the most important thing for us is that when we're telling you about content on a service that is really highly relevant to you and from your very close friends. And I think people are, as they become more aligned on push notifications sort of relax the standards there, and I think it's important for our business.

Thinking his mic was muted, Greenfield's colleague Brandon Ross yelled out, "I didn't even understand his response!" When one of the highlights of an earnings call is an analyst inadvertently mocking your response, it's safe to say that you have some work to do on the communications front.

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