A few months ago Citron Research started coverage of Snap (SNAP) with a $17 price target. The stock shot up in the mid-single-digits on the news. I found the story rather odd since Citron was known as a short seller. The firm cited SNAP’s compelling valuation relative to other social media platforms, and that the short thesis had likely run its course. I assumed Citron was either trying to change sentiment on Snapchat or put the company in play.

So far a suitor has not materialized. Apparently, investors also have come to their senses. Over the past year SNAP is off by about 40%. The company has also gotten the dander up of Rihanna and Chris Brown. Its underlying fundamentals suggest the stock could fall further.

Snapchat Is Burning Cash Like A Drunken Sailor

Since its initial public offering Snapchat has garnered quarterly revenue in the hundreds of millions of dollars, yet the company has consistently hemorrhaged cash. Its Q2 2018 revenue of $262 million was up 44% Y/Y. Daily active users (“DAUs”) of 188 million rose 9%, while average revenue per user (“ARPU”) rose 33%. Growth in ARPU outstripped the 16% rise in cost of revenue per user (“CoRPU”). This would imply the company is benefiting from scale.

However, its revenue less cost of revenue is still not enough to cover R&D and sales and marketing expenses. Its R&D and SG&A expenses fell Y/Y by double digits. However, by my estimation, Snapchat had EBITDA of -335 million, up from -436 million in the year earlier period. Read more:


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