Snap Inc. 2022 Third-Quarter 10-Q Summary
Business context and reporting period. Snap operates Snapchat, with substantially all revenue generated from advertising. This unaudited filing covers the three and nine months ended September 30, 2022; comparisons below are year over year unless noted. Dollar amounts are in millions except per-share data and user metrics.
Key financial and operating metrics
| Metric | Q3 2022 | Q3 2021 |
|---|---|---|
| Revenue | $1,128.5 | $1,067.5 |
| Gross profit and gross margin | $661.7; 58.7% | $624.0; 58.5% |
| Operating loss and operating margin | $(435.2); (38.6)% | $(180.8); (16.9)% |
| Net loss | $(359.5) | $(72.0) |
| Diluted loss per share | $(0.22) | $(0.05) |
| Adjusted EBITDA | $72.6 | $174.2 |
| Cash from operating activities | $55.9 | $71.6 |
| Free cash flow | $18.1 | $51.7 |
| Average daily active users | 363 million, up 19% | 306 million |
| Average revenue per user | $3.11 | $3.49 |
Revenue rose 6%, while total costs and expenses grew 25% to $1,563.7 million. Research and development, sales and marketing, and general and administrative expenses increased 37%, 24%, and 50%, respectively. Stock-based compensation was $343.0 million in the quarter.
For the first nine months of 2022, revenue increased 17% to $3,302.1 million; operating loss was $1,107.7 million and net loss was $1,141.2 million. Adjusted EBITDA was $144.3 million versus $289.9 million, and free cash flow was negative $23.1 million versus positive $62.0 million.
Liquidity, debt, and capital allocation
At September 30, 2022, cash, cash equivalents, and marketable securities totaled approximately $4.4 billion. Current assets were $5,537.7 million and current liabilities were $1,139.9 million. Convertible senior notes had a net carrying amount of $3,740.8 million; the company also had a $1.05 billion revolving credit facility with no borrowings outstanding and $32.4 million of standby letters of credit.
Operating cash flow was lower year over year, while capital expenditures increased to $37.8 million from $19.8 million. Snap repurchased 51.3 million Class A shares for $500.5 million, completing its July authorization. In October, the board authorized a further repurchase program of up to $500 million.
Material changes, outlook, and notable items
- Restructuring: Snap announced a strategic reprioritization and an approximately 20% reduction in global headcount. Q3 restructuring charges were $154.6 million; total charges are expected to reach up to $190 million, primarily through year-end 2022. Management said the plan is intended to focus on priorities, improve efficiency, and move toward profitability and positive free cash flow.
- Outlook and risks: The filing provides no quantified revenue or earnings guidance. Management said macroeconomic conditions, platform policy changes, reduced advertiser demand, and competition have affected revenue and are likely to continue to do so. It believes existing cash is sufficient for working capital, investing, and financing needs for at least 12 months.
- Advertising and user monetization: Daily active users grew, but ARPU declined. Snap cited privacy and mobile operating-system changes, including Apple’s App Tracking Transparency framework, as impairing ad targeting, measurement, and optimization. Advertising remains the dominant revenue source.
- Unusual items: Q3 other income included $76.2 million of gains on publicly traded securities. The nine-month period included $79.8 million of losses on those securities, partly offset by gains on strategic investments. Changes to useful lives of certain acquired intangibles increased nine-month amortization expense by $43.6 million.
- Commitments and contingencies: Contractual commitments totaled $4.0 billion, primarily due within three years. Pending cases include securities litigation concerning Apple’s privacy changes and a stockholder suit concerning the co-founder agreements and potential stock dividend; the company said the loss range for the securities matter could not be estimated.
Most important facts for investors to verify
- Whether revenue growth and advertiser demand improve, and whether Snap can stabilize or increase ARPU.
- Whether expense reductions translate into sustained improvement in operating losses and free cash flow, including after restructuring charges.
- The treatment, conversion or repayment requirements of the convertible notes, and the effect of future repurchases on liquidity.
- Developments in the disclosed lawsuits, advertising measurement changes, and the company’s $4.0 billion of commitments.