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Snapchat is not having a good last few days. In the last 5 days, the stock has decreased by 28.52%. This happened after their latest earnings report where they reported that revenue only grew by 13% to 1.1 billion during the quarter. This happened after Snapchat previously warned that they thought revenue would likely be at their low end of their guidance which would have been a 20% increase. They underperformed their warning. A growth company like Snapchat does not necessarily have to be profitable in order to increase valuation, but they do have to be increasing revenue. The fact that their revenue is essentially flat right now is not good.
They also reported that they had a net loss for the quarter at $422 million. Compare this to last year at this time where they lost $152 million. Again, a growth stock like snapchat does not necessarily have to be profitable, but the fact that they spent far more than last year at this time and still were not able to increase their revenue by much is a very bad sign for the company.
Snapchat did, however, report an increase in daily active users. They now have 347 million people using Snapchat every day which is an 18% increase in users for the quarter. While people might look at this as a good thing, I do not. The fact that they had an increase in users and still had a hard time growing their revenue, to me, is a bad sign. What point is there in having 347 million people using their platform if they can’t make any money off of it. I think that a big problem is that Snapchat’s users are primarily young people and that is not necessarily the best market to advertise to. I don’t pay for any ads on Snapchat, and I probably never will. Compare this to Facebook where I do spend money on ads for this site. I do this because advertising on Facebook shows results and is cheaper. Why would I, or anyone, pay more money for less results?
One thing that really confused me was the fact that Snapchat announced a buy back program for its stock. Why would a company that just lost $422 million in a quarter launch a buyback program? Is this really the best use of their money? I can’t imagine this being the case. They’re planning to spend $500 million in buybacks. I believe this money should have gone to paying back their debt.
Lastly, Snapchat refused to give guidance for the next quarter. I believe that this is the worst thing they could have done. When I read this, I couldn’t believe it.
As always, I am not going to tell someone if they should or should not buy this stock. What I am going to say is that I am definitely not buying the dip on Snapchat.
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