If I were management, this entire scenario would motivate me to course-correct. And this will negatively affect shareholder value, because higher interest payments leave less money to invest in the business. On its current trajectory, I believe Snap will need to pay back debt with more expensive debt. If revenue stays the same but operating expenses increase, cash from operating activities will likely go down. And it plans "to slow the rate of operating expense growth," implying that operating expenses will still go up. Management refrained from providing official guidance for the current quarter, but it expects flat revenue growth. I don't think Snap's cash burn in the second quarter of 2022 is temporary. Therefore, it still needs its cash to fund operations, as the next chart shows.ĭata source: Snap filings with SEC. However, Snap has historically burned cash and recently returned to burning cash. After all, the company has almost $4.9 billion in cash, cash equivalents, and marketable securities right now on its balance sheet. To avoid this scenario, Snap could use cash.
In other words, Snap might be forced to repay cheap debt with expensive debt - less than ideal. Interest rates have surged in 2022, and I'd wager that interest rates from 2025 through 2028 will be higher than rates in 2019, 2020, and 2021. Snap could pay off its convertible notes in time by issuing new debt.
Unless Snap's stock recovers in time, it will be on the hook to repay the rest. But that debt will only convert at prices much higher than where the stock trades right now. So it "only" has $3.7 billion in convertible long-term debt still outstanding. Snap's management already took care of some of its 20 notes when its stock price was still high. *Calculated based on share price of $9.50 on July 28, 2022.
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