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THESIS OVERVIEW
After revisiting our TAIL thesis on SNAP, we now believe that SNAP's fundamental prospects are likely worse than even the bears suspect. In short, SNAP's model profiles most comparably to that of Pandora (P), and is likely heading down a similar path toward declining revenue growth and/or insolvency.
CALL SUMMARY & TIMESTAMPS
- BACKSTORY [01:00-21:00]: SNAP's model is becoming more constrained from both and ad inventory & demand perspective. On the former, the most obvious red flag regarding ad inventory is the fact that SNAP has already seen declining users, which shouldn’t have happened regardless of the excuse if the user TAM was there. But equally as concerning is SNAP’s usage patterns, with SNAP’s reported metrics suggesting that most of its users are crowding into the side of the app that is tougher to monetize. On the latter, mgmt commentary suggests that larger advertisers are starting to fade the platform.
- THESIS DEVELOPMENTS: [21:10-39:00]: We believe SNAP is heading toward declining revenue growth given the mounting headwinds on both the supply and demand side. SNAP is now taking steps to control its cash burn since its pacing to run out of cash by late 2019, but it has limited room to trim expenses without further exacerbating its ad inventory and/or demand constraints mentioned above. In short, SNAP’s efforts to contain expenses may actually accelerate the onset of declining revenue and exacerbate its cash burn. In short, SNAP is caught between a rock and a hard place.
Let us know if you have any questions or would like to discuss further.
