When Snap Inc (NYSE:SNAP) first came to market last year, it was a little difficult to separate the hyperbole from the facts in terms of market enthusiasm for a company that wasn’t, and still isn’t, any closer to making a profit.
In 2016 the company lost $514 million and in March, Snap Inc. management admitted in a filing that the company might never become profitable.
Snap certainly wouldn’t be the first company to struggle in terms of profitability, you only have to look at some of Twitters' recent struggles to realize that, but in the longer term, investors still need to see evidence of progress and, so far, this seems rather thin on the ground.
Now, over a year later and it doesn’t look any more likely that the company is near anything worth its $25-billion valuation for a company that wasn’t and still isn’t anywhere close to making a profit.
There was some excitement earlier this year when the company managed to post numbers that beat market expectations. A 5% rise in user growth and 8.9 million new users surprised the market, as did a lower than expected loss of $350 million.
This was definitely a move in the right direction, particularly given the possibility it was well positioned to benefit from Facebook’s recent woes and its data privacy controversies.
Snap does appear to be benefiting from a younger demographic and the recent negative PR around Facebook (NASDAQ:FB) could prompt a move away from Instagram and towards Snapchat.
That doesn’t appear to have happened and it would appear that the reasons revolve around a redesign that has helped rive users away, rather than draw them in.
The company also warned that growth and revenue could slow substantially in Q2 despite revenue coming in at $230.7 million in Q1.
The negative publicity from the redesign certainly hasn’t helped and while the company argued that the changes would help drive growth in the long run it would appear that markets aren’t currently convinced, let alone its users, 1 million of whom who signed a petition asking the company to roll back the changes.
It appears management have reaped their reward for turning a deaf ear to their user base with another sharp fall in the share price to record lows. Despite today’s sharp falls management remain insistent that the changes will pay off in the long term, which is likely to be cold comfort to those investors who bought into the narrative of the IPO over a year ago.
That being said, these investors can’t say they weren’t warned given the shareholder structure offers no voting rights in the context of how to steer the direction of the business. In investing, you usually get what you deserve and, in this particular IPO, the hype was always too good to be true.