When Snap reported “earnings” (I call them losses, big losses) this week – media headlines were strangely over-the-moon with praise, from TechCrunch (“Snap shares skyrocket on first earnings beat with revived user growth”) to The Wall Street Journal (“Snap Climbs Back Above IPO Price After ‘Shocker’ Earnings”).
The theory was that Snap had reported “better-than-expected earnings.” Thanks to these headlines, over February 7 and 8, Snap shares rocketed up 48% though they have fallen off somewhat since then.
Having perused Snap’s “earnings” report here’s my headline-
Snap losses surge 106% to $350 million in Q4, and 570% to $3.4 billion for the year, the most ever.
Snap lost more money than it generated in revenues; what is it doing with all this money?
Snap spent (“invested”) US$820 million in cash in 2017, but that’s ok as it still has US$2 billion from investors in the bank and can keep going at this loss rate till 2019, so no problem(?).
Snap Q4 loss soars to $350 million, on $286 million in revenues. Lets think about this fact briefly. Losses are expanding faster than revenues, and from a bigger base, which appears to be reaching for financial disaster, but it’s no problem for analysts.
Twitter does a Snap or an Uber or a Netflix
Twitter also reported earnings this week, and the media headlines showered it with praise, from The New York Times (“Twitter Has Good News for Once: Its First Quarterly Profit”) to CNBC (“Twitter rockets more than 20 percent after the company reports first-ever net profit”).
Twitter’s shares jumped 27% on the announcement, after they’d already soared 60% over the past year on takeover hype that never materialised but keeps getting mentioned to pump up shares. Since the spike following the earnings announcement, shares have declined 10%.
So here’s my view of Twitter’s situation:
Twitter 2017 total revenues shrink 3.4% vs 2016, but Q4 revenues up a measles 2%, as company embarks on aggressive cost-cutting as strategy. Twitter makes $91 million in Q4 profit after gutting R&D and sales and marketing expenses, which might explain revenue stagnation. But still loses $457 million for the year. The firm cuts $68 million from R&D and $71 million from sales and marketing expenses in Q4, trying to shrink itself to growth. Good luck with that!
Tesla the magician
Tesla’s earnings report late Wednesday triggered more truthful headlines, as it is becoming increasingly difficult, even for the blind media, to willingly fall for Tesla’s repeated hype and broken promises. So these mixed headlines ranged from The Street (“Tesla’s Earnings Report Was Remarkably Drama-Free, by Its Standards”) to CNBC (“Tesla shares fall as Wall Street doubts the slowing cash burn is for real”).
Before the “earnings” report, Tesla shares traded at $345, giving it a market capitalization of $58 billion. Shares have since fallen about 10% to $309. A more realistic view could be…
Tesla loses $675 million, the most ever, in Q4, and nearly $2 billion for the year, also the most ever. Tesla has no clue when or if its $36,000 Model 3 will ever be mass-produced having failed to meet 2017 promises… except to put it in space to draw attention from awful results.
Tesla would lose so much money on its Model 3 that it cannot afford to mass-produce it, if it actually could mass-produce it.
Tesla shows “slowing cash” spending caused by its failure to mass-produce cash-guzzling $36,000-Model 3. Tesla cut capital expenditures by $223 million to show a slowing cash investment, just when it should invest more to get production going.
Tesla’s global market share is an invisible 0.1%. So I wonder why is its market cap $58 billion?
Tesla now ominously “targets” rather than “forecasts” a production rate of its Model 3 of “2,500 by the end of Q1 and 5,000 by the end of Q2,” nearly a year behind prior hype, and might never get there. Tesla is really spooking Analysts with it backtracking on prior promises. The production “forecast” has now been demoted to “levels we are focused on hitting.” So these are no longer “forecasts.”
It adds even more ominously that “our prior experience on the Model 3 production ramping up has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time.” OK, all prior statements are out the window.
There is no telling when Tesla’s nonsense will finally hit its shares as investors flee from this endless sea of fake promises. But for now, investors still cling to the magic.