Last week, Snap Inc. (company behind the Snapchat app) filed their S-1 for an initial public offering (IPO). I haven’t done a Finance for Dummies post in a while, and Snapchat’s an interesting company to look at.
I remember a couple years ago when there was a rumor of a $4B acquisition offer from Google ($3B from Facebook). Was wondering if the company would try to be acquired, or go for an IPO. Looks like I have my answer.
Let’s take a look at what’s in the registration statement…
  • The company defines itself from the get-go as a camera company. They cite the camera as the greatest opportunity to improve how people live and communicate.
  • Snapchat started life as Picabook around mid-2011, and later renamed as Snapchat. Months later, they hit 1K daily active users (DAU). (Still before 2012.) They hit 1M DAUs before 2013. 100M DAUs 2015.
  • Snapchat’s first ad was for the film Ouijain 2014.
  • Snapchat averages 158M DAUs today generating over 2.5B Snaps a day. (Snap = short videos and images sent between users.) 60% of DAUs create Snaps daily with DAUs opening Snapchat 18 times per day.
  • On average, more than 60% of sponsored ads are watched with audio on.
  • Snap, with Millward Brown, a market research consultancy, worked together to find the efficacy of their platform. They found that 88% of people who saw an ad for men’s deodorant were males between 13-34 years of age – the advertiser’s target demographic.
  • Some advertisements are used to adjust brand perception, not just taking an action. In one case, Snap and Millward Brown recognized a 30% lift in subscription intent for a streaming music service advertiser and a 24% increase in ad recall.
  • Snap recorded revenues of $58.66M and $404.48M for years ending Dec. 31, 2015 and 2016, respectively, with net losses of $372.89M and $514.64, respectively.
  • Snap includes the following as major competitors: Apple, Facebook (including Instagram and WhatsApp), Google (including YouTube), Twitter, Kakao, LINE, Naver (including Snow), and Tencent.
  • In December 2014, Snap and the Federal Trade Commission (FTC) came to an agreement to provide a bi-annual audit of users’ privacy, for 20 years. Additionally, Snap has a 10-year assurance program to provide compliance reports of practices to prevent minors under the age of 13 from creating Snapchat accounts.
  • Quarterly DAUs have grown from 46M in Q1’14 to 71M Q4’14 to 107M Q4’15 and to 158M Q4’16. So though growth has continued, the rate of growth has slowed down considerably.
  • Snap’s average revenue per user (revenue divided by daily active users) has grown from $0.05 Q1’15 to $0.31 Q4’15 to $1.05 Q4’16.
  • Snap cites seasonality affects to its business including strong advertising revenue in the fourth quarter every year (no surprise) as well as less engagements among users in the summer months (perhaps also unsurprising).
  • Snap launched Spectacles, their camera-enabled sunglasses that creates Snaps. There has not been “material” revenue include in the S-1. 

May 27, Planet Fitness, Inc. filed their S-1 for a public offering of 10,000,000 shares. The company has been listed on the New York Stock Exchange (NYSE) under the symbol “PLNT” with a recent stock price of $17.85 (May 26, 2016). 

I thought this would be an interesting S-1 to pore over as I haven’t reviewed an S-1 in a while and my interest in all things fitness-related. In fact, I have some aspirations to own a gym one day (my own, not a franchise).  

Let’s dig in…
  • “An emerging growth company” as part of the Jumpstart Our Business Startups Act of 2012
  • In addition to the “Planet Fitness’ trademark, the company owns rights to “No Lunks”, “No Gymtimidation”, Judgement Free Zone”, etc.
  • Standard membership is $10 per month includes free fitness instruction to everyone from staff trainers; $19.99 PF Black Card is available for system-wide store access + access to special amenities (i.e. tanning equipment, massage beds, other)
  • 1,171 total stores with typical stores ringing in at ~20K sq. ft. – 1,113 franchised and 58 corporate-owned. Believe in opportunity to more than triple size with 1,000 stores already committed with franchisees
  • Company focuses heavily on “judgement free zone” and creating an environment where members are not intimidated by members or high fees
  • New stores in 2015 signed up an average of 1,300 members per store before even opening their doors – reflect strong brand
  • Each store is required to spend 5-7% of monthly dues towards local advertising
  • Franchisees typically experience >25% return on initial capital investment in the second year of operations (net of advertising and royalties)… most franchisees reinvest capital into Planet Fitness with 90% of new 2015 stores opened by existing franchisees
  • Equipment have typical useful lives of 4-7 years franchisees then provide a predictable, growing revenue model for re-equipping stores
  • Revenue growth
  • Store growth
  • PF Black Card members as a percentage of total membership from 42% 2011 to 57% 2015 with average monthly dues per member $14.24 to $15.64
  • Planet Fitness closed an IPO August 11, 2015 of 15,525,000 shares opening at $16.00 per share
  • Revenue (2013-2015): $211,009 –> $279,777 –> $330,537
  • Number of stores (system-wide, 2013-2015): 749 –> 918 –> 1,124
  • Number of members (system-wide, 2013-2015): 4.8M –> 6.1M –> 7.3M
  • Over 20% of members joined through Planet Fitness websites in 2015
  • Franchisees’ unlevered investment in 2015 for a new store ~$1.9M including fitness equipment purchases and construction (~12 weeks for new construction)
  • 756 employees across corporate owned stores and 180 employees at the company’s headquarters located at 26 Fox Run Road, Newington, New Hampshire

    Last week, Match Group, Inc. filed its S-1in its initial public offering under the stock symbol “MTCH”. You probably know MTCH as one of the largest online dating sites in the world as They also own and operate OkCupid, and Tinder and over 37 other brands. Outside of dating, they also own The Princeton Review – an education site devoted to test preparation, academic tutoring, and the like.

    The company is looking to raise $100M through its IPO. Here are some of my notes:
    • Three classes of common stock: common stock, Class B common stock, and Class C common stock – generally “similar”, but common stock will have one vote per share. Class B will have 10 votes per share. Class C has virtually no votes per share.
    • Match Group, Inc. is owned by IAC/InterActiveCorp (IAC)
    • The company’s mission: “Establishing a romantic connection is a fundamental human need. Whether it’s a good date, a meaningful relationship or an enduring marriage, romantic connectivity lifts the human spirit. Our mission is to increase romantic connectivity worldwide.”
    • 59 million monthly active users (MAU) with 4.7 million paid subscribers (8.0% of MAU) across its brands today up from 8 million MAU in 2011 representing a 63% compound annual growth rate (48% excluding acquisitions)
    • OkCupid was acquired in 2011
    • First half of 2015 saw 68% of new users sign up via mobile vs. 27% in 2013
    • Benefits for users include: Expanded Options; Efficiency; More Comfort and Control; and Convenience
    • A few competitive advantages listed: brand (4 out of the 5 top online dating brands are represented by MTCH); scale (significant scale = more opportunities for users to meet); multiple brands (address the many different markets MTCH is selling to)
    • Acquiring PlentyOfFish Media, Inc. ~$575.0M… scheduled to close Q4 2015
    • Because the company has less than $1.0B in revenue in its last fiscal year, the company qualifies as an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 (JOBS)
    • Revenues (2012-2014): $713.4M, $803.1M, $888.3M.
    • Key metrics
    o   “Total Dating Revenue” which includes both direct user-paid monies and indirect (amounts wholly from advertising)
    o   “Paid Member Counts” (PMC). From 2012-2014, Total PMC grew 25% to 3.5M
    o   Average Revenue per Paying User (ARPPU)
    • Company notes decline of email usage as a risk to the business. Many of MTCH’s communities (users of the various brands) rely on email to communicate new users, new interactions, and the like. However, consumer habits have changed so that email usage has declined. The absence of a communication method as effective as email is a significant risk
    • Given the Ashley Madison hack earlier this year, no surprise MTCH lists its potential inability to protect from cyber threats as a major risk factor
    • International revenue accounts for 31% of total revenue through 1H 2015
    • 36% of all members in 2011 were under the age of 35. By end of the 1H 2015, that number is 62% reflecting mobile adoption, lower average revenue per user (ARPU), etc.
    • Due to the shift of monetization towards lower cost brands, “youthfulness”, and the like, user acquisition channels has also shifted to lower cost channels. Thus, cost of acquisition has accordingly dropped
    • Demand is highest in the first quarter of the year with Q4 being the lowest demand
    • Over 40 brands represented in MTCH with 25 acquisitions since Jan 2009
    • The CEO, Sam Yagan, founded OkCupid in 2003. He also founded SparkNotes in 1999 and eDonkey in 2002
    If you know me, you know for my love for soccer, startups, working out, and meat. Beautiful, red, rare meat… so when Fogo de Chão announced its intentions to raise about $91M through an IPO, I have to study its S-1 Filing for my Finance for Startups series – see link for the S-1 Filing.
    Note: this write-up is actually a little late as Fogo went public on Friday, June 19th opening at $20 and raising $88M vs. the $18 as purported in the S-1.
    A quick intro, first, of Fogo de Chão (“Fogo”)… Fogo is a Brazilian churrascaria restaurant chain serving all-you-can-eat cuts of various meats including beef, lamb, chicken, etc. The restaurants are famous for their servers (“gauchos”) who walk around the restaurant serving meat via skewers. Gauchos visit tables where patrons have “medallions” flipped to their “green” side meaning “keep ‘em coming”. If a patron wishes to defer gauchos (pause service), patrons simply need to flip to the “red” side. I’m reciting this from my own personal experience as it’s one of my favorite restaurants.
    Okay, so here are some notes from the S-1…
    • Proposed offering price per share of $18.00 at 5,073,528 shares = $91,323,504 aggregate price
    • Restaurant metrics include: average unit volumes (“AUVs”) – average sales of all restaurants that have been open for a trailing 52-week period or longer; restaurant contribution – revenue less restaurant operating expenses (COGS, labor, etc.); restaurant contribution margin – restaurant contribution as a percentage of revenue; cash-on-cash returns – for an individual restaurant, ratio of restaurant contribution to initial investment (net of pre-opening costs and tenant allowances)
    • First restaurant opened in Porto Alegre, Brazil in 1979 à36+ years since. First restaurant in the U.S. was in Addison, TX in 1997
    • 26 restaurants in the U.S. alone, 10 in Brazil, one in Mexico
    • FY 2014 – $8.0M AUV with restaurant contribution margin of 32.5% (FY = fiscal year)
    • YTD 2015, opened restaurants San Juan, Puerto Rico, Rio de Janeiro, and Mexico City, Mexico (a joint-venture)
    • FY 2014, average per-person spend was $59. As of today, the dinner cost (includes the Market Table) per person is $51.95
    • Guachos are both chefs and servers, and are mainly focused on a specific cut [of meat]
    • Mentions simple, space-efficient cooking technique which reduces the kitchen footprint; thus, maximizes space for tables for guests àdrives up revenue per square foot
    • FY 2014, ~137,000 guests per restaurant (~60% higher than competitors)
    • Since 2007, restaurants open for at least three years have average third-year cash-on-cash returns in excess of 50%
    • Prospectus cites further growth in the U.S. (100+) and Brazil, but also beyond
    • $4.5M investment per restaurant net of tenant allowances and pre-opening costs with average restaurant size of 8,500 sq ft, AUV of $7.0M and 40%+ cash-on-cash return by year 3
    • Aim to increase per-guest receipt through initiatives like Bar Fogo… FY 2014, alcohol accounted for 16.7% of sales… introduce small plate foods at the bar
    • Thomas H. Lee Partners, L.P. is the private equity entity with 96% ownership of Fogo’s common stock (~82% post offering) – acquisition occurred in May 2012
    • FY 2014: Food and beverage costs = $78,330K with 34 restaurants at year-end. Let’s make an assumption the 34 restaurants were open the whole year. So cost per restaurant ~2,303K. At 137,000 patrons per year per restaurant, that’s ~$16.82 of cost per patron
    • Estimated the World Cup of 2014 which was held in Brazil positively impacted Fogo to the tune of $5.0M FY 2014 additional revenue (~11.4% growth for comparable restaurant sales of Brazilian restaurants)
    • Fiscal quarter comparison (ending 03/2015 vs. 03/2014): $1,903K increase, 68.9%. $4,665K or 7.2% net income Q1 2015
    • Food and beverage costs decreased from 30.6% (FY 2013) to 29.9% (FY 2014) as a percent of total revenue
    Okay, so this round of the Finance of Startups, I’m going to dive into the S-1 for Fitbit – filing for its initial public offering (IPO) seeking $100M. I’ve been researching various finance concepts for a while now, and so I’d like to start putting more practice to the understanding with this kind of like David Cummings does. I figure if he’s successful and doing it, I could follow in his shadow, and take a crack and learning.
    Fitbit, if you didn’t know, is well known for its wearables that count the wearers’ steps, calories burned, sleep habits, and the like. Fitbit devices are paired via Bluetooth with a user’s smartphone that then interprets the data to provide analyses and trends to the users. Fitbit is one of the first companies to really pave the way for the “quantified self” movement.
    Diagram of Fitbit’s community of users – three categories and fitness levels
    But before I begin, here’s what an S-1 form is:

    The S-1 form, also known as “Registration Statement Under the Securities Exchange Act of 1933”, is required by the Securities and Exchange Commission (SEC) for any company seeking to sell securities on a national exchange. The form requires the company disclose details regarding the use of proceeds, current business model, etc.

    So some highlights of Fitbit’s S-1:
    • Fitbit mission: “Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals.”
    • Company started in 2007, and as of March 31, 2015, has sold more then 20.8 million devices (~68% market share, by dollars, in 2014 accordingly to NPD Group)
    • Fitbit uses virtual badges and social competition (with other users) to motivate wearers
    • Revenue have grown rapidly (average year-over-year growth rate of 285.6%)

    2011: $14.5 million

    2012: $76.4 million
    2013: $271.1 million
    2014: $745.4 million

    • Net income (loss) has just turned into the black in 2014

    2011: $(4.3) million… -30% of revenue
    2012: $(4.2) million… -5.5%
    2013: $(51.6) million… -19.0%
    2014: $131.8 million… 17.7%

    • Device sales (ranging from $4.95 to $195.00 U.S. MSRP)

    2011: 0.2 million
    2012: 1.3 million
    2013: 4.5 million
    2014: 10.9 million

    • International Data Corporation (IDC) estimates 21.0 million devices were shipped in 2014, and estimates wearables will reach 114.0 million in 2018 – a 442.9% growth
    • Over 45,000 points of sale (retail) in more than 50 countries
    • 1.1 million registered users as of December 31, 2012; 19.0 million as of March 31, 2015
    • Acquired FitStar in March 2015 to enhance the company’s software and services especially with interactive exercise videos
    • Corporate wellness is mentioned a lot including citing the corporate wellness industry expanding from $7.4B in 2014 to $10.4B in 2018
    • The company incorporated in Delaware in 2007 as Healthy Metrics Research, Inc, but changed the name in October to Fitbit, Inc. Company is headquartered in San Francisco, CA
    • Paid Active Users:

    2012: 558 thousand
    2013: 2,570 thousand
    2014: 6,700 thousand

    • Fitbit cites a highly competitive market not just including specialized consumer electronics companies like itself (Garmin, Jawbone, Misfit), but also the traditional health and fitness companies (Adidas, Under Armour) and even large, broad-based consumer electronics companies (Apple, Google, LG, Microsoft, Samsung). Think about that for a second, aren’t those “large, broad-based consumer electronics companies” now touching everything from fashion to cars to homes, as well? Crazy
    • Products are all contracted for manufacturing in Asian with Flextronics – sole source. This has business continuity issues and procurement implications all over it
    • Fitbit had a product recall due to users having “allergic” reactions to its devices in March 2014
    • For the three months ending March 31 of 2014 and 2015, Fitbit spent $71.9M and $21.1M on advertising and marketing campaigns
    Okay, I reached page 28, and it’s getting pretty dense, so… I stopped. The S-1 continues for another 100+ pages describing in detail about each of the sections from the prospectus earlier presented as well as current product features. Skipping around, you can find some interesting other tidbits including executive compensation (like $7.8 for the President and CEO James Park, of which, $222K was salary) and much more.
    Very interesting to see Fitbit, where they were, where they are, and where they plan to go. I’m surprised, though, the company did not include any other future plans including expanding into more integrative health such as building networks with healthcare providers. Hmm…
    What questions do you have about the Fitbit S-1? How do you think the company will fare in the coming years?