Snap Inc. Announces Fourth Quarter and Full Year 2018 Financial Results

Fourth quarter revenue increased 36% to a record $390 million


Full year revenue increased 43% to $1.2 billion


Daily Active Users were flat sequentially at 186 million

SANTA MONICA, Calif.–(BUSINESS WIRE)–Snap Inc. (NYSE: SNAP) today announced financial results for the quarter
and full year ended December 31, 2018.


Financial Highlights


Operating cash flow improved by $50 million to $(126) million in Q4
2018, compared to the prior year.


Free Cash Flow improved by $49 million to $(149) million in Q4 2018,
compared to the prior year.


Common shares outstanding plus shares underlying stock-based awards
totaled 1,507 million at December 31, 2018, compared with 1,453
million one year ago.


Revenue increased 36% to a record $390 million in Q4 2018, compared to
the prior year.


Operating loss improved $166 million to $(195) million in Q4 2018,
compared to the prior year.


Net loss improved $158 million to $(192) million in Q4 2018, compared
to the prior year.


Adjusted EBITDA loss improved $109 million to $(50) million in Q4
2018, compared to the prior year.


“In 2018, we focused on building a foundation to scale the business over
the long-term by driving sustainable product innovation, scaling our
advertising platform, and hiring the leadership team that will help us
achieve our future goals,” said Evan Spiegel, CEO. “We ended the year
with user engagement stabilizing and have started rolling out the new
version of our Android application to a small percentage of our
community. We are substantially closer to achieving profitability, as we
have maintained a relatively flat cost structure across the past five
quarters while growing full-year revenue 43 percent year-over-year.”




 


Three Months Ended


December 31,


 


Percent


 


Year Ended December 31,


 


Percent






 


2017


 


 


 


2018


 




Change




 


2017


 


 


 


2018


 




Change


(Unaudited)




(dollars and shares in thousands, except per share amounts)


























 


Cash used in operating activities




$


(176,083


)




$


(126,054


)




(28


)%




$


(734,667


)




$


(689,924


)




(6


)%


Free Cash Flow




$


(197,295


)




$


(148,795


)




25


%




$


(819,185


)




$


(810,166


)




1


%


Common shares outstanding plus shares underlying stock-based awards






1,453,004








1,506,623






4


%






1,453,004








1,506,623






4


%


Operating loss




$


(360,964


)




$


(194,707


)




(46


)%




$


(3,485,576


)




$


(1,268,450


)




(64


)%


Revenue




$


285,693






$


389,822






36


%




$


824,949






$


1,180,446






43


%


Net loss




$


(349,977


)




$


(191,668


)




(45


)%




$


(3,445,066


)




$


(1,255,911


)




(64


)%


Adjusted EBITDA




$


(158,922


)




$


(50,363


)




68


%




$


(720,056


)




$


(575,637


)




20


%


Diluted net loss per share attributable to common stockholders




$


(0.28


)




$


(0.14


)




(48


)%




$


(2.95


)




$


(0.97


)




(67


)%


Non-GAAP diluted net loss per share




$


(0.13


)




$


(0.04


)




(65


)%




$


(0.61


)




$


(0.47


)




(23


)%


Q4 2018 Summary & Key Highlights


We ended the year stabilizing Daily Active Users and enhancing
engagement across key metrics:


DAUs were 186 million in Q4 2018, compared to 187 million in Q4 2017
and 186 million in Q3 2018.


In Q4 2018, our iOS DAU increased both quarter-over-quarter and
year-over-year, and average time spent on iOS grew faster during Q4
2018 than during Q4 2017.


We reached over 70% of the total 13- to 34-year-old U.S. population
with premium mobile video ads on a monthly basis.


On average, over 70% of users played with or viewed a Lens every
day. Users played with or viewed Lenses 700 million times on New
Year’s Eve, up nearly 40% year-over-year.


Our commitment to providing high-quality, made-for-mobile video
experiences across the Snapchat platform is yielding positive results:


30% more people are now watching Publisher Stories and Shows every day
compared to last year, and each person is consuming more of these
Stories per day on average.


In Q4 2018, more than 60% of ESPN’s “SportsCenter” audience tuned in
three or more times per week.


“Dead Girls Detective Agency,” a new Snap Original Show produced by
our joint venture with NBCUniversal, reached more than 14 million
unique viewers, and over 40% of the users that completed the first
episode went on to watch the entire season.


Bitmoji Stories, a new cartoon starring Snapchatters and their
friends, reached over 40 million viewers in December.


NBC News announced that two thirds of the 25 to 35 million
Snapchatters watching its Stay Tuned show represented a net new
audience for them.


We strengthened our international content offerings:


We increased the breadth and depth of our content across international
markets including France, Germany, Ireland, Norway, the UK, India, and
the Middle East.


We saw success with localized partners such as Filter Copy in India
and Layalina in the Middle East to reach audiences drawn to local,
culturally relevant content.


We drove continued product innovation:


We began to roll out our new Android application and early test
results are promising, especially on less performant devices,
including a 20% reduction in the average time it takes to open
Snapchat.


We expanded our augmented reality platform and launched Snap Camera,
which lets people use their favorite Lenses when creating or streaming
video on desktop and laptop computers.


By the end of 2018, over 300,000 Lenses had been created by our
community through Lens Studio, and those Lenses were viewed over 35
billion times.


We launched Lens Challenges, where users can participate in challenges
in Lens Explorer by creating a Snap with a Lens that is themed to a
particular song, dance, holiday, or event.


We introduced Friendship Profiles, a collection of images, videos,
messages, links, and more that users and friends have saved in Chat.
Friendship Profiles make it easy to find favorite Memories and the
important things that are saved over time in one place.


We created new products which drove greater monetization:


Commercials, our 6-second non-skippable video ad, continued to perform
well. The majority was transacted via our Premium Content Targeting
tool, a part of our Self-Serve Platform for large brands and agencies.


Collection Ads, which enable a business to showcase four products in a
single Snap, drove over twice the return on ad spend versus our
comparable formats in Q4 2018.


We launched Product Catalogs, which offer a simple, scalable way for
eCommerce businesses to use their websites to create Snap Ads.


The Snap Pixel continued to see growth with over 600 million purchase
events in Q4 2018 up from 230 million in Q3 2018.


We made improvements to machine learning models for app installs and
lower-funnel bidding events, which contributed to higher always-on
revenue, showing that our commitment to performance advertisers is
paying off.


We brought together an experienced leadership team to lead us through
the next important chapter of Snap:


We welcomed several talented and experienced leaders from some of the
world’s leading tech and media companies, including Jared Grusd, our
Chief Strategy Officer, and Jeremi Gorman, our Chief Business Officer.
Julie Henderson will be joining us shortly as our Chief Communications
Officer.


Financial Guidance


The following forward-looking statements reflect our expectations for
the first quarter of 2019 as of February 5, 2019, and are subject to
substantial uncertainty. This guidance assumes, among other things, that
no business acquisitions, investments, restructurings, or legal
settlements are concluded in the quarter. Our results are based on
assumptions that we believe to be reasonable as of this date, but may be
materially affected by many factors, as discussed below in
“Forward-Looking Statements.”


Q1 2019 Outlook


Revenue is expected to be between $285 million and $310 million, or
grow between 24% and 34% compared to Q1 2018.


Adjusted EBITDA is expected to be between $(165) million and $(140)
million, compared to $(218) million in Q1 2018.


Conference Call Information


Snap Inc. will host a conference call to discuss the results at 2:00
p.m. Pacific / 5:00 p.m. Eastern today. The live audio webcast along
with supplemental information will be accessible at investor.snap.com. A
recording of the webcast will also be available following the conference
call.


Snap Inc. uses the investor.snap.com and snap.com/news websites as means
of disclosing material non-public information and for complying with its
disclosure obligation under Regulation FD.


Definitions


Free Cash Flow is defined as net cash provided by (used in) operating
activities, reduced by purchases of property and equipment.


Common shares outstanding plus shares underlying stock-based awards
includes common shares outstanding, restricted stock units, restricted
stock awards, and outstanding stock options.


Adjusted EBITDA 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 related payroll tax expense; and certain other non-cash or
non-recurring items impacting net income (loss) from time to time.


A Daily Active User (DAU) is defined as a registered Snapchat user who
opens the Snapchat application at least once during a defined 24-hour
period. 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.


Average revenue per user (ARPU) is defined as quarterly revenue divided
by the average DAUs.


A Monthly Active User (MAU) is defined as a registered Snapchat user who
opens the Snapchat application at least once during the 30-day period
ending on the calendar month-end. We calculate average Monthly Active
Users for a particular quarter by calculating the average of the MAUs as
of each calendar month-end in that quarter.


Note: For adjustments and additional information regarding the non-GAAP
financial measures and other items discussed, please see “Non-GAAP
Financial Measures,” “Reconciliation of GAAP to Non-GAAP Financial
Measures,” and “Supplemental Financial Information and Business Metrics.”


About Snap Inc.


Snap Inc. is a camera company. We believe that reinventing the camera
represents our greatest opportunity to improve the way 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. For more information, visit snap.com.


Forward-Looking Statements


This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, about us and our industry that involve
substantial risks and uncertainties. All statements other than
statements of historical facts contained in this press release,
including statements regarding guidance, our future results of
operations or financial condition, business strategy and plans, user
growth and engagement, product initiatives, and objectives of management
for future operations, are forward-looking statements. In some cases,
you can identify forward-looking statements because they contain words
such as “anticipate,” “believe,” “contemplate,” “continue,” “could,”
“estimate,” “expect,” “going to,” “intend,” “may,” “plan,” “potential,”
“predict,” “project,” “should,” “target,” “will,” or “would” or the
negative of these words or other similar terms or expressions. We
caution you that the foregoing may not include all of the
forward-looking statements made in this press release.


You should not rely on forward-looking statements as predictions of
future events. We have based the forward-looking statements contained in
this press release primarily on our current expectations and projections
about future events and trends that we believe may affect our business,
financial condition, results of operations, and prospects. These
forward-looking statements are subject to risks and uncertainties
related to: our financial performance; our lack of profitability to
date; our ability to generate and sustain positive cash flow; our
ability to attract and retain users, publishers, and advertisers;
competition and new market entrants; managing our international
expansion and our growth and future expenses; compliance with new laws
and regulations; our ability to maintain, protect, and enhance our
intellectual property; our ability to attract and retain qualified and
key personnel; and future acquisitions or investments, as well as risks,
uncertainties, and other factors described in “Risk Factors” and
elsewhere in our most recent report on Form 10-Q filed with the SEC,
which is available on the SEC’s website at www.sec.gov.
Additional information will be made available in Snap Inc.’s annual
report on Form 10-K for the year ended December 31, 2018 and other
filings that we make from time to time with the SEC. In addition, any
forward-looking statements contained in this press release are based on
assumptions that we believe to be reasonable as of this date. We
undertake no obligation to update any forward-looking statements to
reflect events or circumstances after the date of this press release or
to reflect new information or the occurrence of unanticipated events,
except as required by law.


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
related payroll tax expense; 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 use the non-GAAP financial measure of non-GAAP net loss, which is
defined as net income (loss); excluding amortization of intangible
assets; stock-based compensation expense and related payroll tax
expense; certain other non-cash or non-recurring items impacting net
income (loss) from time to time; and related income tax adjustments.
Non-GAAP net loss and weighted average diluted shares are then used to
calculate non-GAAP diluted net loss per share. Similar to Adjusted
EBITDA, we believe these measures help identify underlying trends in our
business that could otherwise be masked by the effect of the expenses we
exclude in the measure.


We believe that these non-GAAP financial measures 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 these non-GAAP measures 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.


For a reconciliation of these non-GAAP financial measures to the most
directly comparable GAAP financial measure, please see “Reconciliation
of GAAP to Non-GAAP Financial Measures.”


Snap Inc., “Snapchat,” and our other registered and common law trade
names, trademarks, and service marks are the property of Snap Inc. or
our subsidiaries.


SNAP INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands, unaudited)


 




 


Three Months Ended


December 31,


 


Twelve Months Ended


December 31,






 


2017


 


 


 


2018


 




 


2017


 


 


 


2018


 


Cash flows from operating activities


















Net loss




$


(349,977


)




$


(191,668


)




$


(3,445,066


)




$


(1,255,911


)


Adjustments to reconcile net loss to net cash used in operating
activities:


















Depreciation and amortization






18,786








22,682








61,288








91,648




Stock-based compensation






181,044








121,772








2,639,895








538,211




Deferred income taxes






(3,093


)






(512


)






(17,490


)






(383


)


Excess inventory reserve and related asset impairment






—








—








21,997








—




Lease exit charges






—








(235


)






—








33,033




Other






(2,642


)






(224


)






(6,356


)






(903


)


Change in operating assets and liabilities, net of effect of
acquisitions:


















Accounts receivable, net of allowance






(79,844


)






(93,443


)






(104,357


)






(77,506


)


Prepaid expenses and other current assets






9,182








4,653








(39,783


)






1,594




Other assets






3,774








1,471








(4,771


)






21,785




Accounts payable






45,593








11,106








49,696








(33,532


)


Accrued expenses and other current liabilities






(2,461


)






339








100,988








(14,325


)


Other liabilities




 


3,555


 




 


(1,995


)




 


9,292


 




 


6,365


 


Net cash used in operating activities




 


(176,083


)




 


(126,054


)




 


(734,667


)




 


(689,924


)


Cash flows from investing activities


















Purchases of property and equipment






(21,212


)






(22,741


)






(84,518


)






(120,242


)


Sales of property and equipment






—








11,276








—








11,276




Purchases of intangible assets






(82


)






—








(8,107


)






(2,565


)


Non-marketable investments






(2,500


)






(1,235


)






(10,030


)






(22,495


)


Cash paid for acquisitions, net of cash acquired






(33,604


)






(815


)






(386,011


)






(815


)


Purchases of marketable securities






(449,861


)






(335,451


)






(3,862,637


)






(1,653,918


)


Sales of marketable securities






69,979








—








511,068








45,007




Maturities of marketable securities




 


651,898


 




 


511,404


 




 


2,483,225


 




 


2,438,206


 


Net cash provided by (used in) investing activities




 


214,618


 




 


162,438


 




 


(1,357,010


)




 


694,454


 


Cash flows from financing activities


















Proceeds from the exercise of stock options






4,524








123








11,379








47,988




Stock repurchases from employees for tax withholdings






(26,922


)






—








(394,156


)






(551


)


Proceeds from issuance of Class A common stock in initial public
offering, net of underwriting commissions






—








—








2,657,797








—




Payments of initial public offering issuance costs




 


—


 




 


—


 




 


(9,672


)




 


—


 


Net cash provided by (used in) financing activities




 


(22,398


)




 


123


 




 


2,265,348


 




 


47,437


 


Change in cash, cash equivalents, and restricted cash






16,137








36,507








173,671








51,967




Cash, cash equivalents, and restricted cash, beginning of period




 


320,870


 




 


352,467


 




 


163,336


 




 


337,007


 


Cash, cash equivalents, and restricted cash, end of period




$


337,007


 




$


388,974


 




$


337,007


 




$


388,974


 


Supplemental disclosures


















Cash paid for income taxes




$


789






$


443






$


6,226






$


3,598




Supplemental disclosures of non-cash activities


















Assumed equity awards in acquisitions




$


—






$


—






$


3,911






$


—




Purchase consideration liabilities related to acquisitions




$


4,714






$


—






$


16,486






$


—




Recognition of leased facility asset and lease financing obligation




$


344






$


443






$


1,451






$


1,735




Net change in accounts payable and accrued expenses and other
current liabilities related to property and equipment additions




$


17,294






$


(2,074


)




$


13,139






$


(7,764


)


 


SNAP INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share amounts, unaudited)


 




 


Three Months Ended


December 31,


 


Year Ended


December 31,






 


2017


 


 


 


2018


 




 


2017


 


 


 


2018


 


















 


Revenue




$


285,693






$


389,822






$


824,949






$


1,180,446




Costs and expenses:


















Cost of revenue






191,246








212,948








717,462








798,865




Research and development






233,838








164,443








1,534,863








772,185




Sales and marketing






110,458








99,474








522,605








400,824




General and administrative




 


111,115


 




 


107,664


 




 


1,535,595


 




 


477,022


 


Total costs and expenses




 


646,657


 




 


584,529


 




 


4,310,525


 




 


2,448,896


 


Operating loss






(360,964


)






(194,707


)






(3,485,576


)






(1,268,450


)


Interest income






6,070








7,513








21,096








27,228




Interest expense






(876


)






(1,111


)






(3,456


)






(3,894


)


Other income (expense), net




 


2,553


 




 


(3,715


)




 


4,528


 




 


(8,248


)


Loss before income taxes






(353,217


)






(192,020


)






(3,463,408


)






(1,253,364


)


Income tax benefit (expense)




 


3,240


 




 


352


 




 


18,342


 




 


(2,547


)


Net loss




$


(349,977


)




$


(191,668


)




$


(3,445,066


)




$


(1,255,911


)


Net loss per share attributable to Class A, Class B, and Class C
common stockholders:


















Basic




$


(0.28


)




$


(0.14


)




$


(2.95


)




$


(0.97


)


Diluted




$


(0.28


)




$


(0.14


)




$


(2.95


)




$


(0.97


)


Weighted average shares used in computation of net loss per share:


















Basic




 


1,247,017


 




 


1,324,858


 




 


1,166,085


 




 


1,300,568


 


Diluted




 


1,247,017


 




 


1,324,858


 




 


1,166,085


 




 


1,300,568


 


 


SNAP INC.


CONSOLIDATED BALANCE SHEETS


(in thousands, except par value)


 




 


December 31,


2017


 


September 30,


2018


 


December 31,


2018










(unaudited)




(unaudited)


Assets














Current assets














Cash and cash equivalents




$


334,063






$


350,398






$


387,149




Marketable securities






1,708,976








1,064,009








891,914




Accounts receivable, net of allowance






279,473








261,833








354,965




Prepaid expenses and other current assets




 


44,282


 




 


48,887


 




 


41,900


 


Total current assets






2,366,794








1,725,127








1,675,928




Property and equipment, net






166,762








216,609








212,560




Intangible assets, net






166,473








136,473








126,054




Goodwill






639,882








634,186








632,370




Other assets