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At Snap, cost of hosting sets high bar for revenue growth

Snap Inc’s initial public offering filing seemed to show a company with a basic math problem: the company's cost of revenue for 2016 - the amount it had to spend just to keep the messaging service running - was $47 million higher than its $405 million in sales. The high cost of revenue, which in Snap's case consists mainly of payments to Alphabet Inc's Google for hosting the service, means that, on an annual basis, Snap lost money on every one of its 158 million users in 2016, even before accounting for salaries, office rents or anything else. Snap revealed in its IPO prospectus, filed with securities regulators on Thursday, that it will pay Google at least $2 billion over the next five years. But the cost side of the problem may not be as serious as it seems. The company's hosting costs are broadly in line with other social media companies. Its cost of revenue per active daily user was 97 cents in the last quarter of 2016, not much higher than the 85 cents that Face