Does large-cap Software company Snap have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 60.6%, you might be telling yourself the Snap is profitable -- but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Snap's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
| 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%.
