Snap Can't Seem To Grow Earnings And Users At The Same Time

Snap Inc SNAP has a problem.

Investors who got burned buying the stock after its volcanic IPO might argue it has a number of problems, given that it’s down roughly 50 percent since hitting post-IPO highs of almost $30.

Putting that aside, the issue that seems to plague Snap at every turn is an inability to convince the market it can turn a profit. Put simply, the company can’t seem to grow earnings at the same time as users and sales.

In the second quarter, the social media innovator that insists it’s a camera company saw its top line rise 153 percent over the same period last year. In the same period, its daily active user growth was equally impressive, nearly doubling since 2015.

That’s the good news. Here’s the hitch: The company reported a net loss of about $443 million in Q2. While that’s a far cry better than the $2.2 billion loss reported in Q1 (this included $2 billion in stock-based compensation), it’s almost a 300 percent wider loss than the company experienced in the second quarter of 2016.

A graph put together recently by Statista shows the starkly divergent path of Snap’s sales and profits.

Questions surrounding Snap’s ability to become profitable have dogged the company since its IPO was announced, when a line from its S-1 form spooked investors. "We may never achieve or maintain profitability," the filing read. In fairness, this is standard language used often by companies itemizing the risks of an investment, no matter how likely or unlikely those risks may be. Facebook Inc FB, which just reported Q3 earnings of $1.59 per share, said virtually the exact same thing in its IPO filing.

With its Q3 print due November 7th, bulls will hope to see evidence that Snap's dominance with teens will someday filter through to the bottom line.

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