An Overview of Snap’s Financial Priorities
Snap sees a bright future despite its competition
Snap (SNAP) has outlined several financial outcomes that it wants to achieve as it works to create more value for its shareholders. Snap is under competitive pressure from Facebook (FB), Alphabet’s (GOOGL) Google, Twitter (TWTR), and Yelp (YELP) in the online advertising industry. This strong competition has led some investors to express concern about Snap’s future, especially as competitors clone some popular features of the company’s Snapchat app.
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Improving gross margin
Despite these concerns, Snap’s management has expressed confidence that the company has a bright future. The company has argued that Snap can grow its revenues from its existing user base without relying on expansion of its subscriber base.
To achieve the financial outcomes it wants, Snap says one of its priorities is to grow revenues while keeping the cost of revenues low. This action would allow it to improve its gross margins. Snap’s gross margin for 2Q17 was 19%, implying an improvement of 51% from 2Q16. The company’s gross margin improved 14% sequentially.
Investing in innovation
Improving free cash flow is another target on Snap’s priority list. To achieve this goal, Snap wants to moderate its capital intensity. Snap noted its capital expenditure for 2Q17 was $19.4 million, up from $16.4 million in 2Q16, as illustrated in the chart above.
Driving innovation and monetization is also among Snap’s priorities. The company intends to use strategies such as acquisitions to achieve this goal. Snap noted that it spent more than $200 million toward acquisition transactions during 2Q17.