Snap Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. Snap operates Snapchat, a camera and communications platform, and generates substantially all revenue from advertising.
Key financial and operating metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,067.5 million | $678.7 million | $2,819.2 million | $1,595.3 million |
| Operating loss | $(180.8) million | $(167.9) million | $(676.9) million | $(764.8) million |
| Net loss | $(72.0) million | $(199.9) million | $(510.5) million | $(831.7) million |
| Adjusted EBITDA | $174.2 million | $56.4 million | $289.9 million | $(120.4) million |
| Operating cash flow | $71.6 million | $(54.8) million | $107.4 million | $(115.1) million |
| Free cash flow | $51.7 million | $(69.6) million | $62.0 million | $(156.5) million |
Q3 gross profit was approximately $624.0 million, or a 58.5% gross margin, versus approximately 56.8% a year earlier. Operating margin was approximately (16.9)%, compared with (24.7)% in Q3 2020. These margins are calculated from reported revenue and expenses. Q3 diluted loss per share was $0.05, versus $0.14.
Average daily active users increased 23% year over year to 306 million; average revenue per user increased 28% to $3.49. Stock-based compensation was $300.9 million in Q3 and $794.6 million for the first nine months.
At September 30, 2021, cash and cash equivalents were $2.0 billion and marketable securities were $1.5 billion. Convertible senior notes had a net carrying value of $2.25 billion; no amounts were drawn on the $1.05 billion revolving credit facility. Management said existing cash was sufficient for at least the next 12 months. Total current assets were $4.47 billion and current liabilities were $808.5 million.
Changes versus prior comparable periods
- Q3 revenue grew 57%; management attributed growth to more advertisers, stronger auction-based demand, and optimization efficiencies. Nine-month revenue rose 77%.
- Q3 net loss narrowed by $127.9 million, while operating loss widened by $13.0 million. The net-loss improvement included $112.6 million of other income, primarily gains on strategic investments; it should not be read as equivalent improvement in core operating performance.
- Q3 adjusted EBITDA increased by $117.8 million year over year. Q3 operating cash flow and free cash flow turned positive from negative in the prior-year quarter.
- Q3 costs and expenses rose 47% in total. Cost of revenue increased 51%, including $35.5 million of Spotlight content costs; higher revenue-share costs, infrastructure usage, campaign measurement, and content review also contributed. Research and development, sales and marketing, and general and administrative expenses increased, with personnel and stock compensation among the drivers.
Outlook, commentary, risks, and unusual items
- The supplied filing text provides no quantified forward guidance. Management noted that quarterly results are not necessarily indicative of full-year results and said future capital needs depend on growth, hiring, product development, and acquisitions.
- Snap identified Apple iOS privacy changes as impairing ad targeting, measurement, and optimization, with potential effects on ad demand and pricing; similar platform changes and evolving privacy regulation remain risks.
- Management cited COVID-19 uncertainty, including potential effects on advertiser budgets, in-person events, labor availability, and supply chains. Competition, user engagement, and reliance on Google Cloud and AWS were also material risks.
- Q3 other income included $123.2 million of unrealized gains on strategic investments. Nine-month other income included $198.6 million of unrealized and $27.8 million of realized investment gains, partly offset by $41.5 million of induced-conversion expense on convertible notes.
- Snap issued $1.15 billion principal amount of 2027 convertible notes in April 2021, generating $1.05 billion of net proceeds after issuance costs and capped-call purchases. During 2021, it also exchanged portions of its 2025 and 2026 notes for approximately 52.4 million Class A shares.
- The 2021 acquisitions included Wave Optics and Fit Analytics. Goodwill rose to $1.48 billion from $939.3 million at year-end, principally reflecting acquisitions.
- The IPO-related securities class-action settlement received final court approval in March and April 2021. Other ordinary-course legal matters remain; the filing says reasonably possible losses or ranges for pending matters cannot be estimated.
Important facts for investors to verify
- Whether advertising growth and monetization can persist as privacy changes affect targeting and measurement.
- How much of reported earnings improvement reflects operating progress versus investment gains, and the continuing scale of stock-based compensation.
- Convertible-note conversion, cash-settlement, dilution, and refinancing exposures, including the conversion eligibility of the 2025 and 2026 notes.
- Whether user metrics are comparable across periods: Snap notes measurement limitations, possible undercounting, and no uniform industry standard.
- Execution and return on acquisitions, Spotlight content spending, and cloud-service commitments; contractual commitments totaled approximately $1.06 billion as of September 30, 2021.