Snap has to raise user numbers and cut costs while fighting off Facebook’s plan to neutralize all and any competition. The pressure is on.
encouraged investors to throw caution to the wind. On the first day of trading, the stock rose 44%.
The problem is that not every idea is a winner. Spiegel’s decision to change how users follow celebrities and message friends in 2017 promptedand regular users. “I hated the redesign,” said Cara Beckford, one of an estimated 14 million people in Britain who use Snapchat. “So did everyone I know.” Without recourse to votes, the majority of investors have no say in the company’s direction. That means Snap’s decision to cover the costs of operating an aircraft owned by Spiegel is not up for discussion. The perk is not uncommon for executives of large companies. But it is a questionable luxury at a business with negative operating cash flow.
Since Snap’s IPO, its average monthly cash burn — the rate at which costs exceed money generated — has been $68 million. If it can maintain last quarter’s tight cost controls, then the burn can slow to $33 million a month, giving Snap more than three years to raise user numbers before it needs new funds. By that point it may be profitable. If not, the company should take a leaf out of Tesla’s book and consider issuing convertible debt, which carries lower interest rates than plain-vanilla bonds.
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