What happened
Shares of Snap Inc. (SNAP -4.70%) rose 24% in February, according to data provided by S&P Global Market Intelligence. The company kicked off the month by reporting financial results that exceeded Wall Street expectations. Then it followed this up by setting ambitious goals at its investor-day event.
So what
Snap had a great 2020. Full-year revenue increased 46% from 2019 to over $2.5 billion. But fourth-quarter revenue growth was even better, surging 62% higher than the fourth quarter of 2019. This robust revenue growth was built upon the company's solid growth in active users. Snap now has over 265 million people using the Snapchat app daily.
Image source: Getty Images.
After its stellar 2020, Snap management believes it's ready to take the next step. It believes it can sustain revenue growth north of 50% annually for "multiple years." While there's ambiguity in that forecast (how many years?), it doesn't take long for growth like that to add up. At that pace, it wouldn't even take four years for Snap's annual revenue to be over $10 billion. No wonder the market rewarded Snap stock with market-beating gains in February.
Now what
If you could knock Snap for one thing, it's lack of profitability. For 2020, the company's net loss was nearly $945 million and it generated negative free cash flow of over $225 million. These are huge losses. However, its free cash flow has greatly improved from negative $810 million in 2018. Furthermore, management plans to drive revenue growth by better monetizing its platform, including improved advertising revenue. These things could easily lead to operating leverage and help Snap finally turn a profit in coming years if its growth plans play out.
