Snackpass: A Digital Breadline

Too big to fail. It was one of the many cries during the financial meltdown of 2008 that left the United States economy in shambles, consequently devastating numerous Americans and their families. While many businesses went bankrupt during that period, some were so interconnected within the economic system that their failures meant the complete collapse of an already faltering economy. In response, the U.S. government identified and administered large, low-interest loans to large financial institutions and big businesses that were simply too crucial to the American economy that it would mean serious trouble for all American citizens if these organizations ceased to exist.

While we are not currently in a dire economic situation by any means—in fact, we are in one of the biggest economic expansions of United States history—the same “too big to fail” argument is being used to explain the current and expected continued growth of American stocks. In 2019, the S&P 500 stock index rose an astounding 29 percent. However, as fourth-quarter reports continue to release, the S&P 500 index is expected to reach a mere 0.3 percent earnings. Why is this the case? Stock prices are largely based on what investors believe the value of a company to be along with prospects of future added-value; despite 2019’s disappointing corporate earnings, investors continued to believe that earnings would rebound and suspicion of overpriced stocks would disappear. In other words, they believe that the stocks are simply too successful for investors to lose confidence and let them fail any time soon—the stocks are too big to fail. But this unfounded optimism can only last so long. Companies eventually have to start turning a profit for investor confidence to maintain its record high levels. Each company must pull its fair share of earnings or else its investors will quickly evaporate. Currently, we are seeing this sudden re-focus on profitability in certain company giants like Uber, Lyft, and WeWork in the past year. This is where the trouble starts for Snackpass, a new friend to many Dartmouth students.

Need a PopSocket? How about an ugly blue beanie? Do you need a random flag to put up on your stale cinder block wall? Too lazy to order food the normal way? Snackpass, a FoodTech app that offers users the ability to order take-out from certain restaurants in the nearby area, has you covered! The app has recently generated a lot of buzz here at Dartmouth, as campus reps have been “advertising” the platform by giving out all sorts of free merchandise in is signature light blue hue. So far, I have gotten two tote bags, two visors, a three by five foot flag, many pop-sockets, and fifteen bandanas. The Dartmouth Democrats missed an incredible advertising opportunity to take advantage of all the giveaways because this is what a Democratic presidency will look like moving forward: free things with little to no financial security.

Besides giving away free paraphernalia to gain traction for their platform, Snackpass also offers deals on certain items at these restaurants along with reward points for making purchases. Eventually, users are awarded with free items when enough points are accrued. To give us a taste of this, Snackpass gave out one thousand free dishes of pad thai from TukTuk, along with other mini deals from places like Lou’s and Boloco.
An idea born out of the minds of Yale students (I guess ingenuity is just another way they are superior to us here at Dartmouth), Snackpass quickly gained the attention of notable investors. Snackpass has gained the support of big names such as Y-Combinator, Andreessen Horowitz, and others; the company just raised $23.52 million during their series-A investment, giving them a post-valuation—the valuation of company worth after the investment—of a whopping $61.52 million.

The most interesting metric that Snackpass currently holds, though, is its 3.58 percent weekly growth according to Pitchbook. It is growing in the 100th percentile when compared to other companies in the industry. Simply put, there is almost no company that is currently growing as fast as Snackpass. Does this mean that their valuation of $61.52 million is completely justified?

At the moment, Snackpass is not profitable, and while there are no financials out to confirm this claim, some report that Snackpass lacks profitability due to its business model—a model that focuses on stimulating growth in its user base over short-term profit.

There is currently nothing wrong with this business model. In fact, it is commendable; unlike most Dartmouth students, Snackpass actually has the capacity to focus on long term commitments. Snackpass’ platform is also perfectly targeted to the feeble college mind. Why go through the effort of calling someone over the phone to order food, when you can skip all the awkward and meaningless social interaction with the click of a button?

Snackpass’ growth makes it the poster child of any venture capital firm, an industry that invests in high-growth companies that are meant to build value quickly so that the VC’s shares can later be sold for a profit. Its promise of strong future growth secured its spot in Y-Combinator (probably the most highly respected accelerator for startups in the world), and its absurd weekly growth is the rationale that encouraged big-name venture capital funds to buy in early. But eventually, Snackpass’ unprofitable plan will need to be dealt with, and it needs to be addressed sooner rather than later.

To exemplify the need to address profitability, we can look toward a short case study on the stock prices of both Uber and Lyft this past year. Both companies were expected to have enormously successful Initial Public Offerings (IPO) when they went public in early to mid-2019. However, both Uber and Lyft stock prices ended up falling below their IPO stock price in the days after their IPO, signaling a steep decline of investor confidence in each respective company. Even worse, when they looked like they were rebounding in early August, both companies sunk to their record lows and are still in the midst of recovery. Although these companies were valued big, they lacked profitability and did not have a clear path to turn it around. Carter Mack, president and co-founder of the JMP Group, stated that “the lesson of Uber and Lyft IPOs is that investors are looking for a clearer path to profitability.” Investors are tired of seeing hand-waving when the idea of profitability is brought up, and they are punishing startups with failing stock prices.

Although using WeWork as an analogy for something is an insult in and of itself, there is still an important lesson to be learned from its IPO flop. To be fair, it was less of a flop and more like a nose-dive into the pavement, similar to those who are late to their 9L and slip on black ice. On August 14, WeWork publicly filed its IPO paperwork and was expected to be valued larger than Uber’s $82.4 billion valuation. Unfortunately for WeWork, it never saw this valuation materialize as investors soon raised concerns regarding its business model and, again, profitability. While WeWork was growing in revenue, its losses kept pace to make it highly unprofitable. In 2017, WeWork generated $886 million in revenue but also posted $883 million in total losses. In 2018, it raised revenue to an astounding $1.8 billion but the company’s total losses amounted to $1.6 billion. WeWork was not sufficiently profitable and had no intention of working towards profitability, causing investors to lose faith. Eventually, WeWork withdrew its plans to go public and is now going through a large restructuring of the company.

While Snackpass is still an early-stage private company, and its financials have not yet been released, multiple reports are saying that it is currently unprofitable and does not exactly know how it will be profitable in the future. In its current stage, it is focused solely on rapid growth. While this is perfectly fine for the time being, Snackpass’ business model of giving away free food through rewards points cannot be sustainable forever. Snackpass needs to assess how effective this method of gaining traction is and how long it can last. Investors are growing wary of another potential Uber, Lyft, or WeWork disappointment. Snackpass must address the concern of profitability, and the answer may be in the form of severely cutting back on the rewards points or free deals that many college students have grown to love.

Spiffy visors and tote bags can only get you so far; when the next flashy, new attraction is waved in front of our faces, our limited attention spans might just cause us to drift away from the platform. But for now, who needs to send a Flitz when you can send that special someone one-twentieth of a free burrito.