Messaging app firm Snap surprised expectations with its results yesterday – but analysts say the company has a long way to go before it turns the ship around.
Snap’s shares soared 30% after it revealed not just better financial results, but continued steady growth in its global user base, up from 178 million in the third quarter to 187 million in Q4 (albeit unaudited).
Revenue per user also rose, globally, from $1.17 in Q3 to $1.53 in Q4.
In fact annual revenue for the full year was up 104% on the previous year, and advertising revenue was up 74% year on year and 38% on the quarter – reflecting a 25% cut in pricing.
Cash running out
So why the continued doubts? Snap has been burning through its cash reserve at an alarming rate since it went public a year ago in one of the most publicised IPOs of 2017.
Market analyst Justin Pope says Snap “will need to make significant progress before its cash reserves run out”.
Writing on SeekingAlpah.com, he says Snap has continued to grow costs – hiring 100 new employees every month.
“Snap's largest issue is its cash burn. Whether you look at EBITDA [interest, tax, depreciation and amortisation], or cash flows, it remains a huge problem,” he said. “I cannot turn bullish on Snap until this is well on its way to being solved.