Snap vs. TikTok, which makes money?

Snap Inc. (NYSE: SNAP) is an American social media company that calls itself “a camera company.”

In reality, Snap owns Snapchat, a popular photo-sharing app and a fast-growing stock. In fact, Mr. Market paid $17.13 for Snap (SNAP) on 7 February 2020 and $63.78 for Snap on 8 February 2021.

I imagine investors view Snap as an alternative to the fast-growing video-sharing app TikTok. In October 2020, Statista estimated TikTok was the seventh-largest social media platform with 689 million active users.

How Big is TikTok?

However, Statista estimates that Douyin, (TikTok’s Chinese brand) had 600 million users in October 2020. If you add Douyin to TikTok, you can claim TikTok had 1.289 billion active users in October 2020.

Statista separates Douyin and TikTok, because a separate company TikTok Global now operates TikTok in North America and Australia. However, Douyin’s owner ByteDance Ltd will own 80% of TikTok Global. TikTok Global will become a publicly traded company based in Texas.

Snapchat also resembles Facebook’s (FB) image-sharing app Instagram. Statista estimates that Instagram had 1.1158 billion users in October 2020. Instagram was the world’s sixth-largest Social media platform with 1.158 billion users in October 2020, Statista estimates.

In contrast, Statista estimates Snapchat was the 13th largest social media platform with 433 million users in October 2020.

Is Snap Inc. Making Money?

Currently, Snap Inc. (SNAP) loses money. Snap reported a quarterly operating loss of -$167.86 million on 30 September 2020. Snap reported six quarters of operating losses on 30 September 2020.

However, Snap reported a quarterly gross profit of $385.57 million and quarterly revenues of $678.67 million on 30 September 2020. Notably, the gross profit grew from $307.45 million on 31 December 2019. In addition, the quarterly revenues grew from $560.89 billion on 31 December 2019.

Thus, Snap is a growing company that loses money. Hence I think Snap Inc. Is a typical social media company. Currently, the only companies that make money from social media are Alphabet (NASDAQ: GOOG) and Facebook (NASDAQ: FB).

Notably, Stockrow estimates that Snap Inc.’s revenue growth rate was 52.30% in the quarter ending on 30 September 2020. The revenue growth rate rose from 43.88% in the quarter ending on 31 December 2019.

How Much Cash Does Snap Burn?

Snap (SNAP) also burns cash. Snap reported a negative quarterly operating cash flow of -$54.83 million on 30 September 2020.

Snap also reported a negative quarterly ending cash flow of -$427.64 million on 30 September 2020. However, Snap can generate cash. For example, it reported a quarterly ending cash flow of $902.25 million on 31 March 2020. In addition, Snap reported a quarterly operating cash flow of $6.28 million on the same day.

 However, Snap borrows enormous amounts of money. For instance, Snap reported a quarterly financing cash flow of $909.06 million on 30 June 2020. The quarterly financing cash flow fell to $2.43 million on 30 September 2020. Notably, Snap reported six quarters of positive financing cash flows on 30 September 2020.

Snap reported $1.650 billion in long-term debt on 30 September 2020. The long-term debt grew from $880.39 billion on 31 December 2019. Thus Snap burns cash and borrows money to stay in operation.

What Value Does Snap have?

Snap (NYSE: SNAP) offered some value on September 30, 2020. For instance, Snap had $2.725 billion in cash and short-term investments and $4.818 billion in Total Assets on that day.

Snap claims that Snapachat had 265 million dally active users in February 2021. Additionally, Snap claims that 75% of 13 to 34-year-olds in the United States use Snapchat. Interestingly, Snap claims over 200 million users engage with Snapchat’s augmented reality each day.

Snap claims that Snapchat’s users created over five billion Snaps (images) and opened 30 Apps a day in February 2020. Notably, Snap offers no evidence that Snapchat makes money.

I think Snap offers minimal value because there is no evidence it makes money. Nor does Snap offer any evidence of moneymaking plans. In contrast, TikTok Global and Walmart (WMT) are partnering to sell fashion through livestreaming. Interestingly, Walmart owns 7.5% of TikTok Global and Walmart’s CEO Doug McMilon sits on TikTok Global’s board.

There is some evidence that TikTok Global could make money. The Information estimates TikTok’s 2020 US revenues at $500 million.

Snap Makes No Money

My suspicion is that the only value Snap has is as an acquisition target for a company such as TikTok Global.

I think buying Snap could be a smart move for TikTok Global. To explain, I calculate a combined Snapchat/TikTok could have 1.122 billion users and rival Facebook’s platform in size.

However, I think Mr. Market overvalued Snap at $63.78 on 8 February 2021. I see nothing in Snap’s financial numbers to justify that share price.

I advise investors to stay away from Snap because I cannot see what value this company has. In the final analysis, Snap Inc is another social media company that makes no money.