This could hardly be an ideal morning for Snap Inc (NYSE:SNAP) shareholders, who are going to find out a double-digit drop in their holdings if yesterday’s after-hours losses persist in market-hours this Friday. The company’s second-quarter operating loss increased fourfold against the year-ago quarter’s loss — revenue also fell short of market’s expectations despite more than 150% growth.
On a positive note, average revenue per user increased to $1.05 (Facebook: $4.73) from $0.50 a year ago, while daily active users grew from 143 million to 173 million during the same time. But the sequential growth compared to the previous quarter was just 7 million and that’s way low for the company to turn profitable in the foreseeable future, considering its loss (using slightly conservative accounting) exceeded the $181.7 million in revenue.
Facing tough competition from Instagram (owned by Facebook), SNAP is struggling with both monetization and growth — a classic example is Twitter, which is currently valued nearly 30% less than SNAP and is estimated to have 20% less daily active users. SNAP’s cash burn is astounding — nearly $230 million of cash outflow, compared to $150 million in the second quarter last year.
Based on sell-side analysts estimates and a few conservative assumptions, SWS estimates an intrinsic value of $12.28. However, considering SNAP is hardly meeting analysts’ expectations on any front, this estimate has a high likelihood of being revised down.
SNAP remains a trendsetter in terms of the size and nature of social network it operates, but the company needs to find ways to deliver a higher average revenue per user and lower costs (SNAP’s hosting cost per user: $0.61), while bringing more users, at a faster pace, to its platform.