Snap Inc. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Snap operates Snapchat and generates substantially all revenue from advertising.
Key financial and operating metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $982.1 million | $454.2 million | $1,751.7 million | $916.6 million |
| Gross profit / gross margin | $537.1 million / 54.7% | $203.7 million / 44.8% | $894.1 million / 51.0% | $412.8 million / 45.0% |
| Operating loss | $(192.5) million | $(310.6) million | $(496.1) million | $(597.0) million |
| Net loss | $(151.7) million | $(326.0) million | $(438.5) million | $(631.9) million |
| Adjusted EBITDA | $117.4 million | $(95.6) million | $115.7 million | $(176.8) million |
| Operating cash flow | $(101.1) million | $(66.6) million | $35.8 million | $(60.3) million |
| Free cash flow | $(115.7) million | $(82.3) million | $10.3 million | $(86.9) million |
DAUs increased 23% year over year to 293 million; ARPU rose 76% to $3.35. Q2 diluted loss per share was $0.10, versus $0.23 a year earlier.
At June 30, cash and cash equivalents were $2.052 billion and marketable securities were $1.415 billion, totaling about $3.5 billion. Current assets were $4.337 billion and current liabilities $748.1 million. Convertible notes had a net carrying amount of $2.551 billion; no amounts were drawn on the $1.25 billion revolving credit facility. Operating lease liabilities totaled $355.7 million.
Material changes versus prior comparable periods
- Q2 revenue more than doubled, which management attributed to advertiser growth, stronger auction-based demand, and advertising optimization. Six-month revenue increased 91%.
- Q2 operating loss narrowed by $118.1 million and net loss by $174.3 million. Higher revenue improved results, though operating costs rose 54% overall.
- Cost of revenue increased 78% in Q2, including $75.6 million of Spotlight content costs; six-month Spotlight costs were $165.6 million.
- Stock-based compensation rose to $256.6 million in Q2 from $186.2 million; it totaled $493.7 million for the first half. Adjusted EBITDA excludes stock compensation and other items, so it is not equivalent to GAAP profitability.
- Q2 operating cash use worsened year over year, chiefly reflecting a $174.5 million increase in accounts receivable and lower accounts payable. First-half operating cash flow turned positive.
- Snap issued $1.15 billion principal amount of 0% convertible notes due 2027, receiving $1.05 billion net of issuance costs and capped-call costs. It also exchanged $840 million principal amount of 2025 and 2026 notes for about 38.4 million Class A shares.
Outlook, risks, contingencies, and unusual items
- The filing provides no numeric revenue or earnings guidance. Management said existing cash should fund working capital, investing, and financing needs for at least the next 12 months.
- Management said the ongoing COVID-19 pandemic’s effects remained uncertain, including potential impacts on advertising, partners, operations, and forecasting. The filing also flags advertising seasonality and volatility.
- Substantially all revenue depends on advertising. Snap cautioned that privacy rules and mobile operating-system changes, including Apple’s iOS changes, may constrain data collection, ad targeting, and measurement.
- Snap relies heavily on Google Cloud and AWS and disclosed substantial hosting commitments. Total contractual commitments were $1.265 billion, including $722.1 million for hosting.
- Other income included $52.1 million of Q2 unrealized gains and $27.8 million of realized gains on non-marketable investments, partly offset by induced-conversion expense. These gains contributed to reported net loss being smaller than operating loss.
- Snap acquired Wave Optics for total consideration of $541.8 million, including future-service compensation, and Fit Analytics for $124.4 million; purchase accounting for Wave Optics remained preliminary.
- The 2017 securities class-action settlement received final court approval in 2021; $187.5 million had been placed in escrow in December 2020. Snap said it could not estimate reasonably possible losses for other pending matters.
- Key risks include continued operating losses, high stock-based compensation, competition and user-growth uncertainty, privacy and regulatory exposure, reliance on third-party cloud and mobile platforms, convertible-debt repayment or dilution, and founders’ control of over 99% of voting power. Snap reported disclosure controls effective as of June 30, 2021.
Investor verification priorities
- Check advertising demand, DAU and ARPU trends, and the durability of the exceptional year-over-year revenue growth.
- Track GAAP operating losses and cash generation alongside Adjusted EBITDA, including the effect of stock-based compensation and working-capital movements.
- Review debt conversion, refinancing, potential dilution, and cash settlement exposure, particularly for the 2025 and 2026 notes eligible for optional conversion in Q3 2021.
- Assess whether Spotlight and other content investments generate returns commensurate with their costs, and monitor acquisition purchase-price allocations and goodwill.
- Monitor privacy-platform changes, cloud-provider commitments, legal contingencies, and COVID-19-related business uncertainty.