SNAP INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in "Risk Factors," "Note Regarding Forward-Looking Statements," and "Note Regarding User Metrics and Other Data."
Overview of First Quarter 2022 Results
Our key user metrics and financial results for the first quarter of 2022 were as follows:
User Metrics
• Daily Active Users, or DAUs, increased 18% year-over-year to 332 million in
Q1 2022.
• Average revenue per user, or ARPU, increased 17% year-over-year to $3.20 in
Q1 2022.
Financial Results
• Revenue increased 38% year-over-year to$1,062.7 million in Q1 2022. • Total costs and expenses, excluding stock-based compensation and other payroll related tax expense, increased 30% to$1,036.4 million in Q1 2022. • Net loss was$359.6 million , compared to$286.9 million in Q1 2021. • Diluted net loss per share was$(0.22) in Q1 2022, compared to$(0.19) in Q1 2021. • Adjusted EBITDA was$64.5 million , compared to$(1.7) million in Q1 2021. • Cash provided by operating activities was$127.5 million in Q1 2022, compared to cash provided by operating activities of$136.9 million in Q1 2021. • Free Cash Flow was$106.3 million in Q1 2022, compared to$126.0 million in Q1 2021. • Cash, cash equivalents, and marketable securities were$5.0 billion as ofMarch 31, 2022 . Overview
We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate. We contribute to human progress by empowering people to express themselves, live in the moment, learn about the world, and have fun together.
Our flagship product,
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Trends in User Metrics
We define a DAU as a registered
User Engagement
We calculate average DAUs for a particular quarter by adding the number of DAUs on each day of that quarter and dividing that sum by the number of days in that quarter. DAUs are broken out by geography because markets have different characteristics. We had 332 million DAUs on average in the first quarter of 2022, an increase of 52 million, or 18%, from the first quarter of 2021.
Quarterly Average Daily Active Users
(in millions)
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(1)
(2)
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Monetization
We recorded revenue of
ARPU was
Quarterly Average Revenue per User
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(1)
(2)
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Results of Operations
The following table summarizes certain selected historical financial results:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Revenue $ 1,062,727 $ 769,584
Operating loss (271,527 ) (303,606 )
Net loss (359,624 ) (286,882 )
Adjusted EBITDA(1) 64,468 (1,709 )
(1) For information on how we define and calculate Adjusted EBITDA, and a
reconciliation of net loss to Adjusted EBITDA, see "Non-GAAP Financial
Measures."
Components of Results of Operations
Revenue
We generate substantially all of our revenue through the sale of our advertising products, which primarily include Snap Ads and AR Ads, referred to as advertising revenue. Snap Ads may be subject to revenue sharing arrangements between us and the media partner. We also generate revenue from sales of hardware products. This revenue is reported net of allowances for returns.
Cost of Revenue
Cost of revenue consists of payments to third-party infrastructure partners for hosting our products, which include expenses related to storage, computing, and bandwidth costs. Cost of revenue also includes payments for content, developer, and advertiser partner costs. In addition, cost of revenue includes third-party selling costs and personnel-related costs, including salaries, benefits, and stock-based compensation expenses. Cost of revenue also includes facilities and other supporting overhead costs, including depreciation and amortization, and inventory costs.
Research and Development Expenses
Research and development expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation expense for our engineers, designers, and other employees engaged in the research and development of our products. In addition, research and development expenses include facilities and other supporting overhead costs, including depreciation and amortization. Research and development costs are expensed as incurred.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, commissions, and stock-based compensation expense for our employees engaged in sales and sales support, business development, media, marketing, corporate partnerships, and customer service functions. Sales and marketing expenses also include costs incurred for advertising, market research, tradeshows, branding, marketing, promotional expense, and public relations, as well as facilities and other supporting overhead costs, including depreciation and amortization.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation expense for our finance, legal, information technology, human resources, and other administrative teams. General and administrative expenses also include facilities and supporting overhead costs, including depreciation and amortization, and external professional services.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable securities.
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Interest Expense
Interest expense consists primarily of interest expense associated with the Convertible Notes and commitment fees related to our revolving credit facility.
Other Income (Expense), Net
Other income (expense), net consists of realized and unrealized gains and losses on sales of marketable securities, foreign currency transaction gains and losses, and gains and losses on strategic investments.
Income Tax Benefit (Expense)
We are subject to income taxes in
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss), excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; stock-based compensation expense and other payroll related tax expense; and certain other non-cash or non-recurring items impacting net income (loss) from time to time. We consider the exclusion of certain non-cash and non-recurring expenses in calculating Adjusted EBITDA to provide a useful measure for period-to-period comparisons of our business and for investors and others to evaluate our operating results in the same manner as does our management. Additionally, we believe that Adjusted EBITDA is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue-generating activities. See "Non-GAAP Financial Measures" for additional information and a reconciliation of net loss to Adjusted EBITDA.
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Discussion of Results of Operations
The following table sets forth our consolidated statements of operations data:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Consolidated Statements of Operations Data:
Revenue $ 1,062,727 $ 769,584
Costs and expenses(1) (2):
Cost of revenue 420,897 412,601
Research and development 455,563 348,580
Sales and marketing 241,886 150,286
General and administrative 215,908 161,723
Total costs and expenses 1,334,254 1,073,190
Operating loss (271,527 ) (303,606 )
Interest income 3,123 1,137
Interest expense (5,173 ) (5,031 )
Other (expense) income, net (77,537 ) 22,058
Loss before income taxes (351,114 ) (285,442 )
Income tax expense (8,510 ) (1,440 )
Net loss $ (359,624 ) $ (286,882 )
Adjusted EBITDA(3) $ 64,468 $ (1,709 ) (1) Stock-based compensation expense included in the above line items:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Stock-based compensation expense:
Cost of revenue $ 2,446 $ 2,656
Research and development 182,866 163,793
Sales and marketing 42,071 29,084
General and administrative 48,061 41,540
Total $ 275,444 $ 237,073 (2) Depreciation and amortization expense included in the above line items:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Depreciation and amortization expense:
Cost of revenue $ 5,512 $ 5,276
Research and development 22,123 11,036
Sales and marketing 7,392 3,186
General and administrative 3,073 4,000
Total $ 38,100 $ 23,498 (3) See "Non-GAAP Financial Measures" for more information and for a
reconciliation of Adjusted EBITDA to net loss, the most directly comparable
financial measure calculated and presented in accordance with GAAP.
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The following table sets forth the components of our consolidated statements of operations data for each of the periods presented as a percentage of revenue:
Three Months Ended March 31,
2022 2021
Consolidated Statements of Operations Data:
Revenue 100 % 100 %
Costs and expenses:
Cost of revenue 40 54
Research and development 43 45
Sales and marketing 23 20
General and administrative 20 21
Total costs and expenses 126 139
Operating loss (26 ) (39 )
Interest income - -
Interest expense - (1 )
Other (expense) income, net (7 ) 3
Loss before income taxes (33 ) (37 )
Income tax expense (1 ) -
Net loss (34 )% (37 )%
Three Months Ended
Revenue
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Revenue $ 1,062,727 $ 769,584
Revenue as a dollar change $ 293,143
Revenue as a percentage change 38 %
Revenue for the three months ended March 31, 2022 increased $293.1 million
compared to the same period in 2021. Revenue increased due to a combination of
growth in advertisers and auction-based advertising demand and optimization
efficiencies.
Cost of Revenue
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Cost of Revenue $ 420,897 $ 412,601
Cost of Revenue as a dollar change $ 8,296
Cost of Revenue as a percentage change 2 %
Cost of revenue for the three months ended
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Research and Development Expenses
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Research and Development Expenses $ 455,563 $ 348,580
Research and Development Expenses as a dollar change $ 106,983
Research and Development Expenses as a percentage change 31 %
Research and development expenses for the three months ended March 31, 2022
increased $107.0 million compared to the same period in 2021. The increase was
primarily driven by higher personnel expenses due to growth in research and
development headcount, including increased cash- and stock-based compensation
expenses.
Sales and Marketing Expenses
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Sales and Marketing Expenses $ 241,886 $ 150,286
Sales and Marketing Expenses as a dollar change $ 91,600
Sales and Marketing Expenses as a percentage change 61 %
Sales and marketing expenses for the three months ended
General and Administrative Expenses
Three Months Ended March 31,
2022 2021
(dollars in thousands)
General and Administrative Expenses $ 215,908 $ 161,723
General and Administrative Expenses as a dollar change $ 54,185
General and Administrative Expenses as a percentage change 34 %
General and administrative expenses for the three months ended
Interest Income
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Interest Income $ 3,123 $ 1,137
Interest Income as a dollar change $ 1,986
Interest Income as a percentage change 175 %
Interest income for the three months ended
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Interest Expense
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Interest Expense $ (5,173 ) $ (5,031 )
Interest Expense as a dollar change $ (142 )
Interest Expense as a percentage change 3 %
Interest expense for the three months ended
Other Income (Expense), Net
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Other (Expense) Income, Net $ (77,537 ) $ 22,058
Other (Expense) Income, Net as a dollar change $ (99,595 )
Other (Expense) Income, Net as a percentage change (452 )%
Other expense, net for the three months ended
Income Tax Expense
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Income Tax Expense $ (8,510 ) $ (1,440 )
Income Tax Expense as a dollar change $ (7,070 )
Income Tax Expense as a percentage change 491 %
Effective Tax Rate (2.4 )% (0.5 )%
Income tax expense for the three months ended
Our effective tax rate differs from the
Net Loss and Adjusted EBITDA
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Net Loss $ (359,624 ) $ (286,882 )
Net Loss as a dollar change $ (72,742 )
Net Loss as a percentage change (25 )%
Adjusted EBITDA $ 64,468 $ (1,709 )
Adjusted EBITDA as a dollar change $ 66,177
Adjusted EBITDA as a percentage change 3872 %
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Net loss for the three months ended
For a discussion of the limitations associated with using Adjusted EBITDA rather than GAAP measures and a reconciliation of this measure to net loss, see "Non-GAAP Financial Measures."
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use the non-GAAP financial measure of Free Cash Flow, which is defined as net cash provided by (used in) operating activities, reduced by purchases of property and equipment. We believe Free Cash Flow is an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business and is a key financial indicator used by management. Additionally, we believe that Free Cash Flow is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities. Free Cash Flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.
We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income (loss); excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; stock-based compensation expense; and payroll and other tax expense related to stock-based compensation; and certain other non-cash or non-recurring items impacting net income (loss) from time to time. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.
We believe that both Free Cash Flow and Adjusted EBITDA provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting the non-GAAP measures of Free Cash Flow and Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
These non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to the closest comparable GAAP measure. Some of these limitations are that:
• Free Cash Flow does not reflect our future contractual commitments.
• Adjusted EBITDA excludes certain recurring, non-cash charges such as
depreciation of fixed assets and amortization of acquired intangible assets
and, although these are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future;
• Adjusted EBITDA excludes stock-based compensation expense and payroll and
other tax expense related to stock-based compensation, which have been, and
will continue to be for the foreseeable future, significant recurring
expenses in our business and an important part of our compensation strategy;
and
• Adjusted EBITDA excludes income tax expense.
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The following table presents a reconciliation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure, for each of the periods presented:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Free Cash Flow reconciliation:
Net cash provided by operating activities $ 127,459 $ 136,886
Less:
Purchases of property and equipment (21,175 ) (10,851 )
Free Cash Flow $ 106,284 $ 126,035 The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Adjusted EBITDA reconciliation:
Net loss $ (359,624 ) $ (286,882 )
Add (deduct):
Interest income (3,123 ) (1,137 )
Interest expense 5,173 5,031
Other expense (income), net 77,537 (22,058 )
Income tax expense 8,510 1,440
Depreciation and amortization 38,100 23,498
Stock-based compensation expense 275,444 237,073
Payroll and other tax expense related to stock-based compensation
22,451 41,326
Adjusted EBITDA $ 64,468 $ (1,709 ) Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities were
In 2021, we entered into the Exchange Agreements with certain holders of the
2025 Notes and the 2026 Notes pursuant to which we exchanged approximately
In
In
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In
In
In
We believe our existing cash balance is sufficient to fund our ongoing working capital, investing, and financing requirements for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development efforts, the introduction of new features, products, and acquisitions, and continued user engagement. We continually evaluate opportunities to issue or repurchase equity or debt securities, obtain, retire, or restructure credit facilities or financing arrangements, or declare dividends for strategic reasons or to further strengthen our financial position.
As of
The following table sets forth the major components of our consolidated statements of cash flows for the periods presented:
Three Months Ended March 31,
2022 2021
(dollars in thousands)
Net cash provided by operating activities $ 127,459 $ 136,886
Net cash provided by (used in) investing activities (1,017,665 ) 280,555
Net cash provided by financing activities 1,308,766 4,453
Change in cash, cash equivalents, and restricted cash $ 418,560
$ 106,284 $ 126,035 (1) For information on how we define and calculate Free Cash Flow and a
reconciliation to net cash provided by (used in) operating activities to Free
Cash Flow, see "Non-GAAP Financial Measures."
Three Months Ended
Net Cash Provided by Operating Activities
Net cash provided by operating activities was
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Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Free Cash Flow
Free Cash Flow was
Contingencies
We are involved in claims, lawsuits, tax matters, government investigations, and proceedings arising in the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. We also disclose material contingencies when we believe that a loss is not probable but reasonably possible. Significant judgment is required to determine both probability and the estimated amount. Such claims, suits, and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Many of these legal and tax contingencies can take years to resolve. Should any of these estimates and assumptions change or prove to be incorrect, it could have a material impact on our results of operations, financial position, and cash flows.
Commitments
We have non-cancelable contractual agreements primarily related to the hosting
of our data storage processing, storage, and other computing services, as well
as lease, content and developer partner, and other commitments. We had
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are revenue recognition, stock-based compensation, business combinations and valuation of goodwill and other acquired intangible assets, loss contingencies, and income taxes.
There have been no material changes to our critical accounting policies and estimates as described in our Annual Report.
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Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.
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