Snap Inc Not Interested in Expanding Operations to Emerging Markets

Snap Inc has shown no interested in expanding into developing markets. The company has clearly noted that the U.S. and Europe are its primary target.

“And then I think we also talked about two things that are really important to the growth of our service. The first is affordable cell service, broadband cell service and decent to high-end smartphones. So historically we've really focused our efforts on markets where both of those are available because we can really deliver value through our products that way. So I think we think, over time, as connectivity grows, that more people will be able to use our products and really get value from them.” Snap Inc CEO Evan Spiegel stated Wednesday.

Earlier, the company had stated that developed markets offer more possibilities for growth.

"We believe the concentration of our user base among top advertising markets gives us the opportunity to grow our [average revenue per user]."

However, hosting costs are the real reason Snap avoids emerging markets.

"While growth in user engagement increases our overall monetization opportunity, it also bears an incremental cost to our business by increasing our hosting costs."

These hosting costs are of tremendous importance to shareholders, since they dominate Snap's cost structure.

"We also benefit from the concentration of our users in developed markets because the hosting costs of serving these users is typically lower than in other markets. Our hosting costs may increase significantly in the future because we pay incremental hosting costs for new users and increased engagement.", the company further added.

Simply put, Snap faces higher costs and significantly lower ARPU in emerging markets, and expanding there would only accelerate its losses as it gets squeezed. With gross margin already in negative territory, Snap can't afford that.