Shares of Large-cap Software company Snap were up 1.8% during today's afternoon session, as the S&P 500 posted a 1.0% change. Today's upwards movement shows that investor interest in SNAP stock is strong -- but how closely have they studied the company's margins?
While Snap's gross margins for the last year are positive, we are concerned that the company's operating margins are in the red. Gross margins take into account only the cost of revenue, or variable costs -- meaning the cost directly associated with producing the products or providing the service offered by the company.
Operating margins, on the other hand, take into account the company's overhead as well. Overhead, also called fixed costs, includes the company's rent, salaries for personnel not included in cost of revenue, equipment and supplies, amortization, and depreciation. Operating margins tell you about how efficiently Snap is run, and gross margins tell you how profitable its product line is.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-01 | 4,601,847 | -1,815,342 | 60.55 | 5.32 |
| 2022-02-04 | 4,117,048 | -1,750,246 | 57.49 | 8.84 |
| 2021-02-05 | 2,506,626 | -1,182,505 | 52.82 | 10.55 |
| 2020-02-05 | 1,715,534 | -895,838 | 47.78 | n/a |
Snap's gross margins have a coefficient of variability of 10.2%, with a low percentage rate being more desirable as it indicates stability. Revenues have a delta of 28.0% while cost of revenue is shrinking at a rate of -19.3%, which allows for the company's gross margins to grow at an average 6.1% per year.
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-01 | 4,601,847 | -4,181,811 | -30.32 | -77.83 |
| 2022-02-04 | 4,117,048 | -3,068,871 | -17.05 | 50.42 |
| 2021-02-05 | 2,506,626 | -2,186,193 | -34.39 | 46.52 |
| 2020-02-05 | 1,715,534 | -1,923,024 | -64.31 | n/a |
The table above tells us that, on average, Snap has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 17.1%.
