Skip to content

Month: August 2020

TikTok vs Snapchat Showdown. Who is better at what?

Wanted to scratch an itch in comparing similar technology company offerings, and decided to just compare the companies anyway as an exercise.

Let’s go through some fundamentals before diving deeper.

Let’s be clear that both apps, and its companies are burning cash. The two platforms share very similar features, and audiences. But, both have different value offerings. Tiktok, being a video sharing app, is for short clips played with music. Snapchat is more of a messaging app centered on photos and video sharing using “Stories” that can disappear.

Note also that that TikTok is named “douyin” in China, and statistics usually separate the counts for TikTok (international ex-China) and Douyin (China only).

For context, Tiktok was recently launched in 2018 (internationally). Snapchat was launched in 2011.

The number of users are massive. Tiktok+Douyin has at least 300 million users, while Snapchat has 218 million. And the number of downloads is staggeringly different – Tiktok: 738 million, and Snapchat, 75 million. Why such a big discrepancy? Well, remember this is now counting Douyin (i.e. China user base).

The demographics also differ. Tiktok appeals towards the Gen-Zers, where 42% of users are between ages 13-16. Snapchat appeals more for millenials.

For revenue models, Tiktok is mostly CPM-based (cost per 1K impressions), while Snapchat has various advertising options via its self-serve ad platform, and an e-commerce aspect.

Endless, Endless Content

One of the powerful components of TikTok is its algorithmic recommendations. You can open the app and see endless amounts of comedic material, and time just whizzes by. That is great for advertising.

The average TikTok user spends 52 minutes a day on it, and opens the app at least 8 times a day. How about Snapchat? 26 minutes a day, and at least 20 times a day. Hang on, are we on to something here?

Glorious, Glorious Marketing Funnel

Funnel Scripts - Here are some fun copywriting memes...... | Facebook

How are the demographics?

Both apps seem like a gift from the heavens for marketers. They offer top-of-funnel opportunities, which means they are very good at driving awareness for brands, as the user-generated content appeals to specific communities associated with a community influencer.

However, Tiktok is essentially driven by users, with short-lasting trends and humor which may not work for all brands.

The demographics of marketers’ target audiences matters – for a young, meme-like interests, TikTok should be the go-to. For slightly longer-term and mainstream interests, Snapchat should be selected.

How about geographic region?

As of Aug 2020, TikTok is facing lots of headwinds from the USA. Being labelled as a front for Chinese spying, there are forced to divest their US operations in 90 days, and few days later, being banned from India entirely. This leaves the door open for other apps, of which Snapchat is primed to take.

How about the numbers? Averaging out daily users, Snapchat has 210 million daily users, while Tiktok has 425 million daily users: 400 million (douyin) + 25 million (tiktok) daily users. Staggering.

According to Oberlo, TikTok has 800 million active users worldwide.

TikTok Revenue and Usage Statistics (2020) - Business of Apps

Hang on, outside of China, the next largest markets India and the USA has just banned TikTok. Uh oh.

But, subtract away these users from Tiktok’s 800 million you get….a whopping 569 million. And the revenues are insane. $17 billion in 2019, compared to Snapchat’s $1.7 billion. Look’s like China’s market alone would be enough.

Lets check out Snapchat:

How many users does Snapchat have per country? - Quora


In brief, Tiktok seems to come on top here. But let us take a look at more macro views:

Spying and Government Intervention

Johnny English saves the day again

TikTok is still in its early stages, as compared to Snapchat. TikTok does face insurmountable odds with government-level interventions however. Snapchat does have some risk in teens getting wound up in sexually suggestive content (producer or consumer), but this is not as big as a problem to governments than espionage.

UPDATE 27 Aug 2020: TikTok’s New CEO from Disney bows out

Novelty Factor & Impressions Count (literally)


My opinion favors having a novelty factor in Snapchat with their disappearing posts and videos, as compared to TikTok. It could be the reason for the increased number of opens, but basically marketers would love frequency for their CPM to hammer home a campaign’s point (and thus conversion), rather than a long duration of screen time where users may just get tired of the ads or app, and switch it off.

TikTok does has its novelty somewhat, but it boils down to the new features it offers to stay relevant, amongst all the other social media apps – not including heavyweights Facebook and Instagram already sucking away attention.

Abandonment Rates

Minecraft Has Passed Fortnite on Google Trends May 19- May 25 2019 ...

Fads come and go. More finicky audiences will demand new, interesting and hip conetnt. TikTok’s content is also not for everyone – there has been findings of abandonment rates after trying it out, similar to the path of Twitter. Along with the regulatory scrutiny, users may realize that data privacy is something worth more to them, and simply stop using, or transit to another app.

Dependency on Community Influencers

Why Influencer Marketing Should Be Your Go-To Ecommerce Strategy

Communities follow a recognized influencer. The moment influencers leave, content stagnates, the attractiveness of the app drops. This is in contrast with Snapchat, which is mainly user-generated content. Alluding to Abandonment Rates, the reason I attribute Snapchat to be stronger is due to the “power of the crowd” – a company does not have to constantly seek influencers and motivate them to keep creating content like a TV show. Why not let the user’s do it for you, while you collect the data and segment audiences yourself?

TLDR: TikTok dominates the Chinese market, and thus Ad revenues, yet will miss the growth of India and USA. Snapchat seems to be more sustainable option, both for holding on to the interest of users, and marketing dollars.

Other notes:

  1. Let’s take a step back and look at a larger picture though. TikTok is owned by ByteDance, which owns several other content platform or content-producing companies, which does crazy ML stuff (450 articles in 15 days!!).
  2. Government relationships are brought into the picture. What is going on.
Leave a Comment

How To Value A Technology Company

Price is what you pay, value is what you get
Warren Buffet, Berkshire Hathaway

If you have not heard of this person already, and are new to finance/investing, I would recommend him a listen: Aswath Damodaran. Not your usual professor, he is able to uncover interesting valuation methodologies for different types of companies.

In my stint as an Investment Analyst, it can be difficult to look at the hot, new technology companies IPO-ing one after another. There are no revenues. Expenses are through the roof, and the business models are so out of tune with traditional businesses. There is a reason why startups or tech companies have a burn-rate and ‘runway’ – take off, or face imminent crash!

But that is also the point – their approach is different, they are disruptive, and new. The metrics are different, and so are its operations, and way of doing growth. How does one do business valuation of a company when it does not even make money yet? Hang on, perhaps there is a way!

Not all businesses, and not all users are equal

We can start with an assumption that the way to value a ‘traditional’ business (gold miner) and a technology company is different. What is constant in both however, is cashflow per action.

What is cashflow per action? There are a few activities in business that really drives profit. For tech companies, here are some of them:

Uber: Makes money whenever a user hails a ride with its app. No money is made if the user does not open the app at all.

A New App, Built For and With Drivers | Uber Newsroom
Taken From Uber’s Website

Facebook: Makes money whenever they sell an impression ad. Money is made regardless if the user logs in or not (and eventually drops off).

Here's the New Facebook App With Its Big Focus on Groups
Taken from

Netflix: Makes money whenever users subscribe to their plans.

NetFlix App - Not Optimised for IPad Pro 11 inch :( : ipad
Taken from Netflix’s website

Bread-and-butter Business Models

The Types of Business Models

Technology companies typically sell subscriptions as services, commissions from transactions if they are a platform, or sell ads based off their user data. How these are implemented depends on the company’s unique proposition, and therefore have some in-built advantage if they have for example, high user stickiness compared to their competitors (TikTok vs Snapchat as an example).

How to start making sense of numbers?

There are three main components in modelling user-based valuations.

First: The Existing users, and the value attached to them

From Aswath’s Presentation at Stern, hosted by Gartner for Marketers on YouTube.

There is existing profitability based on how much revenue is being brought in. You can model the traditional Present Value of cashflows. Other things you can do are to see how loyal they are – you want repeat customers, and you also want them to bring their friends!

So we can come up with variables to define the renewal rate, the lifetime of each user (how long they stay), the grow in cashflow per user, and their uncertainty. We can then derive what the existing customer base should be worth. You will notice that revenues are important even for a tech company. Equally or even more important in some cases, is the growth of a user base.

Second: Future users, and their future value. Taking the above “snapshot” of current users, we can project out based on changing our variables, and over N number of years, what the expected user base should be like. This is closely followed by the costs involved in doing so, to acquire users (marketing, personnel costs for customer service, etc).

Third: Corporate “drag” – expenses in running the business. This you cannot run away from, but you can gradually decrease over time. As a technology company, incorporating scaleable techniques and technologies allow you to do more, with less. As such, the larger your volume/users/transactions, it should cost less to acquire new users or maintain existing ones. We will come back to this in awhile.

A user that stays on for 20 years, is worth a lot more than a user that uses for 6 months to a year. Thus the renewal rates matter in the valuation too.

How to model the cashflows?

In comparison with these three models, which is easier to model cashflows? Take Netflix. Steady user growth, steady increase in paying customers if they convert. However, you may also see this model tapering off as users have watched enough content, and flock to other sites (read: Amazon Prime).

Which of the businesses have higher growth potential? Uber or Facebook? Facebook, because as the user base grows, the ability to sell advertisements rises – think about how many audience segments, demographics and user data is being collected. Such rich data is essential for advertisers and publishers who can make tons.

So, poor Uber then? Well no, not exactly. They are still making money, albeit not as much. The kicker is in their long-term dynamics – if and only if self-driving comes about, they essentially have an automated taxi-force. However, there is a cap to that – how many cars can be on the road at once?

The Costs of Running A Technology Business Operation

There is also the cost of every day business, an operational expense if you will.

However you also have the cost of acquiring a user. And this is the magic in the technology company’s model – The value of a user differs! A user for Facebook may be worth more than a user for Uber. However, the acquisition cost may be lower, or higher! Think about it – how does Facebook go viral? It is easy to share the link, inviting your friends, and finding their friends and so on. How about Uber? It is mostly an individual ride, and perhaps a friend of two if you share some promotional coupons. Thus, it costs tremendously more to acquire a user at Uber, as considered to Facebook.

A user base as large as Facebook’s gives you a “Real Option” value. Imagine how many ads can be sold per hour to your different audiences in your larger user base.

Projecting Value

Recall when we talked about how being larger allows economies of scale? If you can acquire users at a low cost, thats great. You would want to spend more to acquire larger users, as the user base is worth more when it is larger (multiplier effects – think of ads going into the thousands or millions of impressions).

So let’s dive deeper into Uber’s financials (circa 2016). We can use traditional “Income Statement” numbers, and upgrade it with our “growth metrics” stated above:

From Aswath’s presentation

Taking Uber as an example. Cost of servicing existing users, and acquiring users are under operating expenses. However, it is difficult to draw conclusions if they are truly losing money, or spending money for future growth.

So there is a need to separate how much went into spending for the future, and how much they are actually losing, and this is definitely possible to do.

Taking the difference in user growth, the cost of servicing existing members. Estimate that it costs Uber $239 per user in 2016. Estimate that for overall expenses, 69% of every dollar went to servicing users. Is that a lot? Well it depends, because we can do comparables now!

If we use the same approach, we can model Uber vs Lyft (comparables in the same space), but we cannot do Uber vs Amazon. That needs a totally different approach. But at least we have a basic framework to valuing technology companies now.

If Uber can help you find a way to spend 12% more every year….

Projecting Risks

Well one cannot just set a 10% year on year growth of revenues or users without incorporating elements of risk. Come 2020, technology companies are under intense scrutiny.

Facebook is getting lawsuit after lawsuit for data privacy. Google, for monopolisation and/or making free money off news publishers, Apple for similar reasons except the victims are App publishers. Uber and its rival Lyft, for classifying their drivers as non-employees, and thus saving a ton of personnel costs…The list goes on.

Now, if you were a fledgling startup, this is hard to do – you don’t have size, and your technologies are more or less the same as the larger companies. How do you differ? Why should investors put their money with you? I’ll cover this and more in the next series of posts.

View the full, excellent piece by Prof. Aswath Damodaran:

TLDR Summary
1. Profits are better than losses: If you are an investor in a business, you would rather that the business makes money than loses money
2. Young companies lose money: If you have a young company, you should expect the company to make losses, even if it is a valuable business
3. Not all losses are created equal: For young growth companies, dependent upon users or subscribers, there are good ways to lose money and bad ways to lose money.
4. Investor beware: To invest in these companies, you need to know why they lost money, not just how much
5. A company whose expenses are primarily fixed (will not grow with revenues) will be worth more than an otherwise identical company whose revenues grow as fast as costs (or not as fast!)
6. Not all growth types are equal. Rather have growing more intense subscribers, than just a user that does not monetize.
7. If everyone has low costs of acquiring users, competition kicks in.
8. Networking benefits: If you are already bigger, it is easier to grow. If networking effects kick in early, costs per acquiring user goes down quicker.

Leave a Comment

Hello Worlds

I always thought writing could bring 3 worlds into one neatly. COVID gave me some time to reflect on the things that matter. Thus this seemed timely, and a good place to post my (hopefully) deeper thinking on topics of interest to readers.

I find insight in combining different fields of thought, and teasing out the essentials from each that can form a (hopefully) valuable opinion, in the perspective of Business, Technology, Investment.

In hope of writing more articles, I can refect deeper and discover new insights that makes me a little more knowledgeable. I’m happy to have readers who intend to take a similar journey!


Such truth and inspiration

Well you probably know the tone of the blog by now. I hope I can blend some low-key-funny into more serious content that still adds value. On a serious note, I like combining the best of corporate execution, and inventiveness of early to seed stage start-ups.

I was always fascinated by the internal workings of a company that give it an edge over competitors. Think about it: How the operations are done, how each person contributes a multiplier effect, and how decisions are being made – all these turn into competitive advantages for a firm. It is also worth nothing how externalizations affect an organization, and what they can do (with or without technology or investment), to overcome it. I would like to push further to say it is possible, with enough courage and will – but technology can make the process of change smoother.


Technical Debt Incoming

The hot topic since Facebook, Amazon, Apple, Netflix, Google (FAANG). You may see a few references of them. But how about going down to more matured technologies, and how they can combine for an individual or company to make lives easier? I compare some practices at some of these technology companies, and how they can be incorporated in a “non-tech” and in personal capacity.


Investing Memes - Wonka | | Flickr

Private and public markets are intriguing. The concentration of capital has led to fantastic products and services, and continue to do so. I wish to cover some of the trends I observe in private equity and publicly traded markets, and they are responding to new events.

Once again, thanks for coming. Till the next post.

Leave a Comment