This just in — SNAP Inc. (NASDAQ:SNAP) is still losing money. During the December quarter that had SNAP stock defying the biggest market correction in a decade, Snap spent $646 million to bring in $285 million. This was a lot more than the $208 million in revenue earned the previous quarter, but it still represented a loss of $350 million, or 28 cents per share.
Snap is like a clothes designer coming up with snappy Nehru jackets when the market has gone to pinstripe suits. A year ago, even a month ago, Snap’s blowing away estimates of $253 million in revenue, by over 10%, would have had this writer cheering, maybe even buying.
With the stock winds blowing colder, not so much.
The question today isn’t whether Snap is going to find a big-pocketed buyer or become another Facebook Inc. (NASDAQ:FB), but whether it will be around at this time next year.
At the end of this “stellar” quarter, Snap had $2.043 billion in short-term investments on the books, essentially ready cash. It’s spending about $650 million per quarter on operations and only getting half that back in revenue. It could be out of cash by mid-2019 unless something good happens.
The reason people who should know better are getting bullish on SNAP stock is because they think Snap Inc. is getting significantly better at monetization. Its new SNAP store is a demonstration of how the company can sell merchandise within the app.
The bullish thesis is that Snap appeals to younger users who are abandoning Facebook, but that these users are still just as anxious as their older brothers and sisters to support brands that advertise on the platform. That may be true. It may also be false. Regardless, it’s an assumption, not a proven fact.
When a market downturn reveals bargains, you buy bargains.
There are some good stocks now selling at bargain prices. Apple Inc. (NASDAQ:AAPL) is at 16 times earnings. Ford Motor Co. (NYSE:F) just increased its dividend and will soon be yielding 7.3% if you want income. Citigroup Inc. (NYSE:C) is selling at 13 times earnings.
The point is not to recommend any of the above stocks, but to simply point out that there are great bargains in the wreckage of early February and you don’t have to chase a quick buck. If you want to gamble, buy bitcoin (BTC).
Even if you buy the idea that the SNAP stock glass is half-full (and many don’t), you can still wait for it. There is some good news to digest in Snap’s latest quarter… there is also some bad… and a lot of ugly.
Those who equate Facebook to SNAP are also forgetting that Facebook owns its own cloud and SNAP doesn’t. This means Facebook can pivot into other businesses, as it has with Instagram and Messenger. When SNAP adds features, Facebook creates similar features — and Facebook has enough cash to play this game out for as long as you like. Facebook is the cat, Snap is the mouse.
SNAP will reply that its users don’t just reject Facebook, but anything having to do with Facebook, including Messenger and Instagram. But that is still a niche audience.
Facebook does not have first-mover advantage over Snap. It has second-mover advantage. It learned from MySpace, beat it, and has scaled. It has a fortress balance sheet, $41 billion in cash against $14 billion in annual expenses, almost $85 billion of real assets, including a network of cloud data centers.
Facebook knows the answers to questions SNAP hasn’t even asked yet.
SNAP may gain a niche, but it won’t win the market. It may make money, but it’s not going to be Facebook.
Your money can do better.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and F.