Snap Crackles And Pops On CEO Spiegel's New Profit Goals

Snap Inc SNAP rose more than 3 percent early Friday as the Street circulated an internal memo delineating a recovery strategy and conceding recent miscalculations.

What Happened

In the Sept. 26 memo to employees obtained by Cheddar, Snap CEO Evan Spiegel referenced a “stretch goal” to break even in the fourth quarter with “full year profitability” following in 2019. The strategy includes expansion of the app’s Discover section and augmented reality offering.

Spiegel also acknowledged recent failures throughout what he called a “foundation” year.

“In our excitement to innovate and bring many new products into the world, we have lost the core of what made Snapchat the fastest way to communicate,” he wrote.

He attributed the rejected redesign to a mistaken sense of identity: Snap confused itself with a social media company. Moving forward, it intends to differentiate itself as a general camera and communication platform.

Why It’s Important

Snap has been under heavy pressure to grow its user base and prove its longevity. This week, the stock slipped below $8 for the first time. A bearish Evercore analyst forecasted a 1-million dip in daily active users for the third quarter and cut his price target to $7, considering Instagram is “irreversibly reducing” Snap’s ability to meet Street expectations.

However, Spiegel’s strategy to accelerate revenue growth inspired confidence.

“Given the high historical cash burn and finite cash reserves, this will be critical in avoiding the need to raise more capital, in our view,” Deutsche Bank analyst Lloyd Walmsley wrote Friday.

What’s Next

The memo did not include a timeline for product development or business strategy.

Snap was up nearly 4 percent in pre-market trading. At time of publication, however, Snap shares traded up only marginally to $7.79.

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