Snapchat Is Hemorrhaging Cash

When I first heard about Snapchat’s exploding videos a few years ago I thought it was a neat idea. It could save teens the embarrassment of having their videos seen by people other than who they were intended for. Just because something is a neat idea does not necessarily mean it should be a publicly-traded company. Snapchat went public a year ago. Its revenue has grown, but like most start-ups Snapchat is hemorrhaging cash.

In Q4 2017 its revenue of $286 million was up 72% Y/Y. Its daily average users (DAUs) of $187 million rose 18%; growth in average revenue per user (“ARPU”) rose 46% and outstripped 6% growth in cost of revenue per user (“CoRPU”). Snapchat is growing its infrastructure in order to sell more ads and generate new revenue opportunities. Its R&D and SG&A expenses more than doubled versus the year earlier period. EBITDA and cash flow suffered for it. Snapchat generated EBITDA of -$342 million, down from -$159 million in Q4 2016.

Free cash flow for Q4 2017 was -$197 million, and -$819 million for full-year 2017. The company raised $1.2 billion of preferred stock in 2016 and another $2.7 billion in common stock in 2017. At year-end its cash and securities of just over $2.0 billion. At its cash burn rate how long with its liquidity last?

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