Mar 9, 2018

Report: Snap chasing profitability by year-end

Snap CEO EVan Spiegel. Photo: Steve Jennings/Getty Images for TechCrunch

Snap CEO Evan Spiegel sent a company-wide note to employees "several months ago" outlining a zealous goal to break even in 2018, according to The Information.

Why it matters: It's a very ambitious goal considering Snap lost $720 million last year and analysts expect the company to continue to lose money this year. While the company has been steadily increasing its average revenue per user, it has invested some cash flow into other parts of its business, like marketing and research and development, which has eaten at its profitability.

Our thought bubble: It makes sense that Spiegel, the CEO of a now publicly-traded company, would aim for profitability, although the timing seems rushed. The company increased adjusted losses by roughly 56% year over year in 2017.

The report does not specify on which terms the company would break even — ie. based on EBITDA, GAAP profitability or free cash flow. However, it can be assumed from the company's Q4 earnings report that increasing margins on revenue, mostly through developing its advertising capabilities and expanding into new markets, will be a major factor in helping to drive revenues past costs to hit profitability.

Cost-cutting through restructuring of staff and resources could also be a means of increasing margins, although staff layoffs as of late seem more about strategic direction of specific departments than an effort to cut costs to drive profitability.

  • Snapchat CEO Evan Spiegel said last year that all managers would be assessing their team sizes and locations, which could mean hiring, cuts or no change.
  • Snapchat recently laid off 120 engineers, the biggest round of layoffs to-date. According to an email obtained by Cheddar from Snap's Head of Engineering Jerry Hunter, the layoffs are part of a larger effort by the engineering team to replace less experienced talent with higher-performing technical experts.
  • Snapchat laid off roughly two dozen human resources staffers in January as an effort to cut back on hiring upon having reached a point of maturity at around 3,000 employees.

The company has faced increased pressure from investors to focus on revenue growth and profitability in light of missing earnings in its first few quarters as a public company. Snapchat did show significant improvement in its fourth quarter as a public company, surprising investors that had modest expectations for the camera company.

  • At the time analysts argued that the bar was set low for Snapchat, and that it still had a long way to go until raising revenues enough to hit profitability.

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