Just a few months after its long-awaited IPO, Snapchat’s (SNAP) recent Q1 financial results have markets concerned … and for good reason. While the company has seen tremendous growth in its userbase over the past few years, it has never been able to reach profitability, a troubling metric plaguing the industry.
Latest reports show the company has taken in revenues of $149.6 million while bleeding out over $2 billion. During the company’s Q1 earnings call, CEO Evan Spiegel attempted to put a positive spin on the disaster, saying they’ve been focused on “working on the quality of the Snapchat application”, but Spiegel’s dismissal of the numbers isn’t sitting well with investors.
For decades now, the tech industry has become a force to be reckoned with, disrupting any industry that got in its way. It’s clear to even the least tech-savvy person in the room that technology is the future of business. But, is tech as we know it today going to go away soon?
Traditionally, investors invest in companies that sell great products, have lots of potential to take on new and emerging markets, and show signs of operational excellence – projecting to reach profitability somewhere between years 3 and 5. More recently, that hasn’t been the case.
Investors have been taking chances on unproven applications like Snap that have massive amounts of attention, but lack profitably. The new model pushes companies to ‘get big’ as fast as they can, position themselves as a market leader, differentiate themselves from the competition, and grow, baby, grow!
While growth and attention are important metrics to measure, losing massive amounts of money can’t be a sustainable model.
Snap’s financial woes are just the beginning of a concerning trend seen across the industry. Other recent losses include Twitter (TWTR) with $62 million in net losses, Twilio (TWLO) with $14.8 million in losses, and Uber with an apparent $2.8 billion loss in 2016.
While these companies are able to achieve what few ever do, Snap’s recent records could prove troubling for the industry. Investors will realize that the fundamentals of efficiently operating a business are just as important as attention, and the money will dry up. Only time will tell, but I have a feeling it’s going to be sooner rather than later.