With Cash Drain, How Long Can Snap Stay in Business?

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Snap Inc. (NYSE: SNAP) posted another horrible quarter. The results were poor enough that the company has to keep an eye on its cash and securities. While the reserve appears large, Snap is burning through it.

Revenue rose 54% in the first quarter to $231 million. The company’s net loss was $385 million, compared to $2.2 billion in the same quarter a year ago. Snap presents adjusted EBITDA as a better means to show its bottom line performance. This was a loss of $218 million, compared to $118 million last year. So, whether the measure used is GAAP or adjusted EBITDA, Snap is in trouble.

It would seem that Snap has a lot of cash on its balance sheet. At the end of the first quarter, the figure was $1.821 billion. However, that is down from $2.043 billion at the end of last year. Snap’s cash balance fell $221 million in one quarter. That gives the company eight quarters at the current burn rate.

And that burn rate could rise. Wall Street was alarmed by several numbers in Snap’s results:

Daily Active Users (DAU) grew from 166 million in Q1 2017 to 191 million in Q1 2018, an increase of 15% year-over-year. DAUs increased 2% quarter-over-quarter, from 187 million in Q4 2017.

Revenue was $230.7 million in Q1 2018, up 54% year-over-year driven by growth in Snap Ads, and down 19% sequentially, primarily due to seasonality and our redesign.

Average revenue per user (ARPU) was $1.21 in Q1 2018, up 34% year-over-year and down 21% sequentially. Cost of revenue per user (CoRPU) was $1.03 in Q1 2018, up 5% year-over-year and 1% sequentially.

A rapidly grown social media company should not show flat results in daily active users, even on a sequential quarterly basis. It is even worse for sequential revenue and average revenue per user.

Snap is running in reverse, and rapidly. Snap management’s experimentation with a new design shows how haphazardly the company is operated. A management team that would make such a huge mistake should not be at the head of the company.

Snap has a few quarters to turn itself around but, looking at its cash balance, not many.

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