Snapchat was taken public in 2017 amid a stock market that had been growing at a fever pitch. President Obama and the Federal Reserve had been printing money to buy stocks to pump the stock market. This has led venture capital firms and entrepreneurs to take companies publicly that may never have seen the light of day had the government not supported stocks under the guise of spurring the economy. Snapchat is one of them.
Snapchat seems like a neat idea, but CEO Evan Spiegel has never proven the company can make money. Snapchat recently tried to amplify engagement and revenues. One of its ads made light of domestic violence involving Rihanna and Chris Brown. The pop icon clapped back at Snapchat and SNAP’s share price dropped immediately. The Shock Exchange recently pointed out that Snapchat has been 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.
Evan Spiegel refused to take the moniker lying down. In full “Rihanna style” he clapped back at the Shock Exchange immediately.