Morning Report: Snap shares are down by nearly a fifth. Let’s work out why.
Good morning everyone, and welcome to our final note on what happened to Snap in the first quarter.
We usually stick close to private companies here at Crunchbase News, but we’re taking a small breather in the case of Snap as the firm not only matters as a recent tech IPO, but also as a company that came of age in the unicorn era, fueled by private cash and a long IPO window.
And while a great number of companies have done well, in the end, after pursuing a similar trajectory (Dropbox, for example), Snap appears to be slowly coming apart.
Its shares are off just under 20 percent as of the time of writing, a stunning rebuke from public market shareholders after the company’s Q1’2018 earnings came in light twice over.
Snap missed on revenue and user growth, meaning that it missed on present-day value (revenue, cash flow) and future value, which is implied by user growth; revenue is a trailing metric, and so forth.
But just missing growth and user expansion numbers probably isn’t worth a full 20 percent reduction in value. Snap’s problem is that while it deals with troubles stemming from a change in how it sells ads, and a redesign, it is losing great gobs of money.
Check the following:
The company’s costs and expenses came to $623.2 million, while its revenue was just $230.7 million. That is one hell of a gap. What that means, in GAAP terms, is that Snap doesn’t have infinite time to get things figured out. It is eating too much of its seed corn, to abuse an old saw, to last more than a few winters.
And the firm isn’t just posting GAAP losses. Its cash consumption is very high as well. Per its own earnings slides:
The firm’s free cash flow was therefore at least a local maximum of badness during the most recent quarter. There is no real way to spin Snap’s results as better than they appeared at first blush.
So it’s really a triple issue that Snap’s shares are dealing with: faster-than-anticipated revenue growth deceleration, slowing user growth implying slower future revenue expansion, and a cost profile in GAAP and cash terms that is unsettling.
That mix is worth about a fifth of its value, it turns out. Snap is trading at all-time lows today, more than $5 under its IPO price. More on its health next quarter.
From The Crunchbase Daily:
- Accompany is the latest artificial intelligence-focused startup to lure an acquirer. Cisco is paying $270 million to buy the five-year-old company, which operates an AI-enabled platform for professional networking and finding sales prospects. Silicon Valley-based Accompany previously raised about $40 million in venture funding.
- Birchbox, the seller of curated beauty products in a box, has sold a majority stake to hedge fund and existing shareholder Viking Global Partners. The deal reportedly leaves the New York company’s other prior backers with nothing.
- U.S. securities regulators have so far taken a mostly hands-off approach to cryptocurrencies. However, while they’ve been treating bitcoin as a commodity, regulators are considering whether they ought to classify Ethereum as a security.
- Shares of Snap plummeted following an earnings report that missed revenue targets amid anemic user growth and a continued high cash burn rate. The results come in the wake of its controversial redesign.