Snap (SNAP) the owner of Snapchat shows that social media cannot always make money. Moreover, Snap’s revenues are declining because of coronavirus.
For instance, Snap Inc. (NYSE: SNAP) reported a -$310.61 million quarterly operating loss on 30 June 2020. That quaretly operating loss grew from -$286.36 million on 31 March 2020 and -$253.60 million on 31 December 2019.
Moreover, Snap’s quarterly revenues fell from $560.89 million on 31 December 2019 to $462.48 million on 31 March 2020 and $454.16 million on 30 June 2020. Thus, Snap’s moneymaking capacity is declining.
Snap Loses Money
Snap Inc. (SNAP) saw its quarterly common net loss grow from -$240.70 million on 31 December 2019 to -$305.94 million on 31 March 2020 and -$325.95 million on 30 June 2020.
Snap began 2020 with a quarterly negative operating cash flow of -$66.84 million on 31 December 2019. The quarterly operating cash flow rose to $6.28 million on 31 March 2020 and fell to -$66.55 million on 30 June 2020.
However, Snap reported a $350.38 million quarterly ending cash flow on 30 June 2020. The quarterly ending cash flow fell from $902.25 million on 31 March 2020 and rose from -$209.55 million on 31 December 2019.
In addition, Snap borrows enormous amounts of money. Snap reported a quarterly financing cash flow of $909.06 million on 30 June 2020. That means Snap borrowed $909.06 million in that quarter. However, Snap reported a $3.13 million quarterly financing cash flow on 31 March 2020.
Interestingly, Snap had $2.830 billion in cash and short-term investments on 30 June 2020. Thus, Snap can retain some cash. Notably, Snap’s cash and short-term investments grew from $2.082 billion on 31 March 2020.
What Value Does Snap Have?
Snap (SNAP) had $4.704 billion in assets on 30 June 2020. Snap’s quarterly assets grew from $3.899 billion on 31 March 2020.
Thus, I think Snap has little value for the owner of what Statista labels the 7th largest social media platform. To explain, Statista estimates Snapchat had 397 million active users in July 2020.
In contrast, the largest social media platform Facebook (FB) had 2.603 billion active users in July 2020, Statista estimates. Moreover, Facebook’s Instagram, Snapchat’s biggest direct competitor had 1.082 billion users in July 2020. Notably, TikTok a controversial Snapchat competitor had 800 million users in July 2020.
Statista estimates that Snapchat had 238 million daily active users in 2nd Quarter 2020. That number grew from 203 million in 2nd Quarter 2019.
I think Snapchat shows a social media network need will 700 or 800 million users to make money. Unfortunately, I think there is no way Snapchat could grow to that size.
Can Snapchat compete with TikTok?
Moreover, I think Snap (SNAP) and Snapchat cannot compete with TikTok. Notably, TikTok grew from no users in 2016 (the year it launched) to 800 million active users in 2020, Oberlo claims.
In contrast, Snapchat launched in September 2011, yet it had 397 million users in July 2020. Thus, it took Snapchat almost nine years to acquire 397 million users and TikTok four years to attract 800 million users.
Observers think TikTok grows so fast because artificial intelligence (AI) operates it. To elaborate, people think TikTok’s AI can analyze a user’s viewing habits and identify the videos a person will watch. For example, if you always watch cat videos, TikTok’s AI will bombard you with cat videos.
Will TikTok Kill Snapchat?
TikTok could become a direct competitor to Snapchat because its owner ByteDance Ltd plans to set up an American company called TikTok Global. TikTok Global will have high-powered owners in the form of Walmart (WMT) and Oracle (ORCL).
Under the deal ByteDance organized to keep President Donald J. Trump (R-Florida) from shutting down TikTok’s US operations down. Walmart will own 7.5% of TikTok Global and Oracle will own 12.5% of TikTok Global.
TikTok grows at an astounding rate. Between 2016 and April 2020, Sensor Tower claims people downloaded two billion copies of the TikTok app from Google Play and the App Store two billion times.
Snap (SNAP) cannot compete with TikTok Global
I do not think Snap (SNAP) can compete with TikTok Global. Thus, I think a smart move for Snap could be to sell itself to TikTok Global.
To elaborate if it becomes part of TikTok Global, Snap could get access to ByteDance’s artificial intelligence and machine algorithms. Snap could add TikTok’s algorithms to Snapchat.
In addition, Snap could get access to cloud resources and money from Oracle (ORC) and retail expertise and cash from Walmart (WMT). Oracle could use Snapchat to distribute its business enterprise solutions, and Walmart could adapt Snapchat for retail advertising and marketing efforts.
In conclusion, I think Snap (NYSE: SNAP) has no value in today’s social media market. I believe Mr. Market overpriced Snap at $27.83 on 16 October 2020.
I think investors need to avoid Snap and examine social media companies that make money-such as Facebook (FB). Additionally, I think investors need to investigate TikTok Global when its stock appears. I think TikTok Global could make money someday, but Snap never will.
Originally published at https://marketmadhouse.com on October 16, 2020.