It’s easy to pretend the world isn’t burning when you have the confidence of a mediocre white man.
Snapchat is making financial history all over the place. CEO Evan Spiegel, 26, became the youngest chief executive to head a company listed on NASDAQ and NYSE. The company increased its value ten times over in March, from $3.4 billion to $34 billion the day of its IPO. But that high-flying success may be short-lived.
In its first earnings report since taking the company public, Snapchat’s stock nose-dived 25 percent Wednesday, from a high of $29.44 per share before bottoming out at $17.27 in after hours trading— just cents above its initial price offering.
Reports of a $2.2 billion loss in the first quarter sent investors into a panic. It’s not unusual for stocks to take a hit following their first earnings reports after going public—Facebook and Twitter saw dips around 14 percent—but Snapchat is a little different for two reasons: investors have no say in the company’s direction (even when it’s failing) and Spiegel has openly admitted he has no idea how to make the company profitable.
In its SEC filing earlier this year, Snap Inc. said it “may never achieve or maintain profitability.” Snap also said it has “experienced net losses and negative cash flows from operations” since it started in 2011.
So while $2.2 billion in losses in a single quarter is staggering (especially compared to the mere $516 million lost in all of 2016), it wasn’t exactly a surprise. Throw in Facebook’s blatant Snapchat ripoffs (Instagram’s Story and WhatsApp’s Status features) and investors have a legitimate reason to worry about whether betting on Snapchat’s IPO was good idea.
Such a huge hit to one’s bottom line would rightly send most people into a panic. But not when you have the confidence of a rich, white man who — while inventive — doesn’t know what he’s doing.
Snapchat surpassed its initial valuation of $3.4 billion despite no evidence of potential profitability. The fortunes of the company appear based solely on investors’ confidence that a 26-year-old Stanford drop out could do what his Facebook counterpart Mark Zuckerberg did, simply because he said he could.
When asked about whether Facebook’s clones of Snapchat were a threat to the company’s future, Spiegel laughed.
“At the end of the day, just because Yahoo, for example, has a search box, it doesn’t mean they’re Google,” he said.
Sick burn aside, Spiegel’s confidence appears to be Snap Inc.’s biggest bankable asset. Investors are giving him and his company money millions of dollars on the confidence that he’ll figure something out. One day. Maybe.
“If you want to be a creative company, you gotta get comfortable with, and basically enjoy the fact that people are going to copy your products if you make great stuff. We’ve seen this happen a lot in technology. When Google came along, everyone really felt like they needed a search strategy. When Facebook came along everyone felt they needed a social strategy. And now with Snap, with our company, we believe that everyone is going to develop a camera strategy because I think we really help people understand how valuable the camera is,” he said.
But is “camera strategy” really a thing? Snapchat provides a different way for people to interact with each other — often times the same people they interact with via text or other social networks. Media outlets fled to Snapchat in 2015 to reach younger audiences, building whole teams dedicated to repackaging existing and creating original content.
But the reception of native ads and media content has been mixed. According to a Fluent report, Snapchat’s users ignore ads and third-party content, opting to snap their friends and look at celebrities’ snaps instead. Sixty-one percent of American adults surveyed said they didn’t follow major news outlets on the app.
Snapchat has successfully created a highly engaged universe that looks and feels different than just about every other social media platform (clones excluded.) It’s user base is growing, adding about 44 million new users a year, which is impressive and encourages investments. But Wednesday’s earnings report highlighted that the company’s ventures and current strategy — as we were warned — are flops in terms of generating revenue, and are clear signs of a new tech bubble.
Snapchat only sold 96,000 of its $130 Spectacles, glasses with tiny cameras attached meant to record video without having to reach for your smartphone. It’s primarily still a service for the “elites,” and hasn’t been able to translate the same iPhone experience or success to Android devices, which make up 90 percent of the worldwide smartphone market, CNET reported. It’s clear the company’s spending outpaces its earnings: $196 million operating costs, $90 million spent on cloud services (about 60 cents per user), $78 million in research and development, along with stock payouts in the first quarter all contributed to Snapchat’s $2.2 billion loss.
As the adage goes, it takes money to make money. Snapchat is still in its infancy and figuring things out. But based on Wednesday’s report, it looks like the company has a long way to go to temper investor expectations and actually figure out how to make money. Or even to demonstrate that it cares.
Snapchat is the next tech bubble filled with egos, hot air, and filters was originally published in ThinkProgress on Medium, where people are continuing the conversation by highlighting and responding to this story.