Snap Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports results for the quarter ended December 31, 2019; it is an annual report, not a standalone quarterly filing. Snap operates Snapchat and generates nearly all revenue from advertising.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $1.716 billion | $1.180 billion |
| Cost of revenue | $895.8 million | $798.9 million |
| Gross profit and margin | $819.7 million; 47.8% | $381.6 million; 32.3% |
| Operating loss and margin | $1.103 billion; (64.3%) | $1.268 billion; (107.5%) |
| Net loss | $1.034 billion | $1.256 billion |
| Diluted net loss per share | $0.75 | $0.97 |
| Net cash used in operating activities | $305.0 million | $689.9 million |
| Free cash flow, non-GAAP | $(341.4) million | $(810.2) million |
| Adjusted EBITDA, non-GAAP | $(202.2) million | $(575.6) million |
- Revenue increased 45%; management attributed growth to stronger advertising demand and more impressions. Total costs and expenses rose 15% to $2.819 billion.
- Fourth-quarter revenue was $560.9 million versus $389.8 million a year earlier; quarterly net loss was $240.7 million. Fourth-quarter Adjusted EBITDA was positive $42.3 million, including a $100 million add-back for securities-litigation charges.
- Cash, cash equivalents, and marketable securities totaled $2.113 billion at year-end, versus $1.279 billion a year earlier. Working capital was $2.144 billion.
- Snap issued $1.265 billion of 0.75% convertible senior notes due 2026, receiving $1.15 billion net of issuance costs and capped-call costs. Their net carrying amount was $891.8 million at year-end. No borrowings were outstanding under the $1.25 billion revolving credit facility.
- Contractual commitments totaled $1.726 billion, principally hosting commitments. Snap said existing cash was sufficient for ongoing requirements for at least the next 12 months.
Users, changes, and management commentary
- Fourth-quarter average Daily Active Users (DAUs) rose to 218 million from 186 million a year earlier and 210 million in the prior quarter. Fourth-quarter ARPU increased 23% year over year to $2.58.
- Advertising represented 98% of FY 2019 revenue. Management linked growth to improvements in the self-serve ad platform, which made inventory easier to buy and helped advertisers reach more users at lower prices.
- Cash used in operations improved by $385.0 million year over year; free-cash-flow loss narrowed by $468.7 million. Capital expenditures fell to $36.5 million from $120.2 million.
- Annual net loss narrowed 18%. Adjusted EBITDA loss improved 65%, but remains a non-GAAP measure that excludes, among other items, substantial recurring stock-based compensation.
- Research and development expense was $883.5 million, including $464.6 million of stock-based compensation. Total stock-based compensation was $686.0 million, up from $538.2 million in 2018.
Outlook, risks, and unusual items
- The filing gives no specific numerical financial guidance. Management emphasizes continued product and advertising innovation, user engagement, and monetization, while prioritizing long-term user experience over short-term financial results.
- Snap remains loss-making: accumulated deficit was $6.946 billion at year-end. Management warns it may not achieve or sustain profitability or positive operating cash flow.
- Key business risks include intense competition for users and advertising, reliance on advertising revenue, privacy and data-protection regulation, difficulty measuring user metrics, and dependence on Google Cloud and AWS. Snap disclosed multiyear minimum cloud-spending commitments and significant hosting costs.
- In January 2020, Snap reached a preliminary $187.5 million settlement of IPO-related securities class actions, subject to court approval. It accrued $100 million of expense in Q4 2019, net of amounts directly covered by insurance.
- Other notable items include a $39.9 million gain from the 2019 divestiture of Placed and $59.0 million of other income, largely reflecting that gain and investment gains. Snap also acquired AI Factory and another business in 2019.
- Class A shares have no voting rights; the founders controlled approximately 99% of voting power at year-end. Share dilution and substantial unrecognized equity compensation are relevant investor considerations.
- Management and the independent auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether DAU growth and ARPU gains persist, and whether advertising demand and pricing support continued revenue growth.
- Whether losses and cash burn continue to narrow, accounting for stock-based compensation and other exclusions in Adjusted EBITDA and free cash flow.
- Available liquidity after convertible-note obligations, capped-call arrangements, and the $1.7 billion-plus of contractual commitments, especially cloud spending.
- Status and final cost of the securities settlement, plus outcomes or developments in other disclosed litigation, including the Vaporstream matter and the BlackBerry appeal.
- Reliability and comparability of DAU and demographic metrics, which Snap says may be undercounted, estimated, or affected by measurement changes.
- Effects of founder voting control, non-voting Class A stock, and equity-award dilution on public shareholders.