Is Snap Inc (SNAP) The New Twitter Inc (TWTR)?

Less than three months ago, Snap Inc (NYSE:SNAP) went public in a much hyped event. Despite skeptics yelling that SNAP was overvalued, the stock price soared in the first few days of trading and then fluctuated between $20 and $23. However, Snapchat’s Q1 2017 filing suggests that maybe the skeptics were right all along.

In their 10-Q quarterly report, Snapchat reported dismal numbers that had investors worried. Company shares fell 20% after Snapchat reported $150 million revenue as opposed to the consensus of $158 million. This with the backdrop of a 5% growth in users for a total of 166 million daily active users.

The value Snapchat was able to get from these users fell as Average Revenue per user (ARPU) fell to $0.90 as opposed to $1.05 in Q4 2016.

This wouldn’t look so bad if Snapchat’s value didn’t come from the expected massive growth of both users and revenue. 5% user growth is a bleak number for a company who just launched an IPO and has 166 million users, relatively small compared to fast growing bigger counterparts.

Compare that with Facebook’s 4.6% user growth for a total of 1.3 billion global active users. If a company 10 times the size of Snapchat is able to grow just as quick, what does it say about SNAP?

And, unfortunately for optimistic investors, it isn’t just an isolated incident. Q1’17 user growth was 36% on a year over year (YOY) basis; compare that with a YOY growth of 52% for Q1’16 and 73% for Q1’15.

It’s never a good sign when a supposed growth-company falls short of expectations. Worse yet was the huge loads of cash used to achieve this disappointing growth.

Snapchat burned through $2.2 billion as opposed to the $105 million the year before. Granted, SNAP noted in its prospectus that this massive loss was expected, $1.7 billion of the loss came from the vesting of restricted stock units.

Despite that, the company is still burning through massive amounts of cash with poor growth. Additionally, SNAP is only expected to turn a profit in early 2020, with the assumption of 92% earnings growth over the next three years.

NYSE:SNAP Snap Future Revenue and Net Income by Simply Wall St
NYSE:SNAP Snap Future Revenue and Net Income by Simply Wall St

As this quarter’s filing has shown us, waning growth may throw the idea of profitability by 2020 out of the picture.

This new data has quelled the optimism of even the most bullish investors. Perhaps Snapchat is not the new Facebook. Maybe it’s the new Twitter.

SWS contributor Shivam Patel has no positions in the stocks mentioned above.