Tech

Snap: profit warning highlights more than macroeconomics

Snap doesn’t have much luck with gadgets. The video recording goggles, first sold in 2016, resulted in a loss of nearly $40 million. The release of Pixy, a small yellow drone, coincided with a sharp drop in the company’s stock price this year.

Co-founder Evan Spiegel’s statement that Snap is a camera company means it’s likely to keep releasing new hardware. But investors are rightly more interested in his company’s operations as a social media network that generates revenue from digital advertising.

Increasing user numbers aren’t enough to keep Snap from declining revenue growth. Snapchat’s Los Angeles-based parent has warned it will miss a 20% to 25% revenue growth target and adjusted ebitda targets in the current quarter. The hopes of a positive net income this year could be over. The stock fell 29 percent in after-hours trading. That’s more than a third below its 2017 list price

Snap blames deterioration Macroeconomic background. Digital advertising budgets are being squeezed by the war in Ukraine, privacy restrictions by Apple and Alphabet, and rising inflation. Colleagues like Meta and Twitter have pointed out the same issues.

But Snap’s willingness to experiment also deserves a closer look. His reputation for invention has kept users. Larger companies follow his interest in augmented reality. But it is expensive. In the most recent quarter, R&D spending was $455.5 million, representing 43 percent of revenue. Facebook parent Meta’s $7.7 billion in R&D accounted for 28 percent of sales.

At the very least, Snap has been bolstering its tally when it’s able to. Repeat sales of convertible debentures means it has $2.4 billion in cash and cash equivalents, up from less than $1 billion last year, plus $2.6 billion in marketable securities.

That’s a good thing. Spiegel and its co-founder Bobby Murphy will retain 99 percent of the voting rights following the sale of the public preferred shares. The company may have promised to slow down hiring, but Snap’s costly focus on good ideas is unlikely to change.

Snap: profit warning highlights more than macroeconomics Source link Snap: profit warning highlights more than macroeconomics

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