Snap’s Earnings Remind Us Of The Growth-Profitability Tradeoff

Let’s explore the public market’s current views on profits versus growth.

Because the deeply unprofitable company isn’t projecting the sort of growth that Wall Street expected, as MarketWatch explains:

In recent years, with the private market flush with cash, companies going public have been majority unprofitable, though often growing extremely quickly.

There’s a bit of a trade off: a company going public today tends to be either a high-growth company, or profitable-ish.

Snap focused on growth over turning a profit before and during its IPO; it has yet to break even as a public company.

But if the company posted strong revenue expansion, why are investors trading its shares down?

Investors are now accustomed to Snap’s quick revenue growth and clearly aren’t happy to see it fall under their expectations; slower growth means lower implied future cash flow and profit, let alone a longer ramp to gross profit covering costs.

Maybe this is all to say, if you’re going to grow fast and go public, you’ll need to keep the growth up if you aren’t cleaning up your losses at the same time.

Becaused missed results can sternly correct investor expectations; Snap has seen that happen to its benefit and detriment during its life as a public company.

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