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   81,655     71,381     67,194  
Total assets $ 3,421,566   $ 2,783,776   $ 2,714,106  
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 71,194 $ 20,175 $ 30,876
Accrued expenses and other current liabilities   275,062     265,345     261,815  
Total current liabilities 346,256 285,520 292,691
Other liabilities   82,983     114,164     110,416  
Total liabilities   429,239     399,684     403,107  
Commitments and contingencies
Stockholders’ equity
Class A non-voting common stock, $0.00001 par value. 3,000,000
shares authorized, 883,022, 976,066, and 999,304 shares issued and
outstanding at December 31, 2017, September 30, 2018, and December
31, 2018, respectively.
9 10 10
Class B voting common stock, $0.00001 par value. 700,000 shares
authorized, 122,564, 93,660, and 93,845 shares issued and
outstanding at December 31, 2017, September 30, 2018, and December
31, 2018, respectively.
1 1 1
Class C voting common stock, $0.00001 par value. 260,888 shares
authorized, 216,616, 221,491, and 224,611 shares issued and
outstanding at December 31, 2017, September 30, 2018, and December
31, 2018, respectively
2 2 2
Additional paid-in capital 7,634,825 8,098,519 8,220,417
Accumulated other comprehensive income 14,157 6,470 3,147
Accumulated deficit   (4,656,667 )   (5,720,910 )   (5,912,578 )
Total stockholders’ equity   2,992,327     2,384,092     2,310,999  
Total liabilities and stockholders’ equity $ 3,421,566   $ 2,783,776   $ 2,714,106  
 
SNAP INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, unaudited)

 
 

Three Months Ended

December 31,

 

Twelve Months Ended

December 31,

  2017       2018     2017       2018  
Free Cash Flow reconciliation:
Net cash used in operating activities $ (176,083 ) $ (126,054 ) $ (734,667 ) $ (689,924 )
Less:
Purchases of property and equipment   (21,212 )   (22,741 )   (84,518 )   (120,242 )
Free Cash Flow $ (197,295 ) $ (148,795 ) $ (819,185 ) $ (810,166 )
 

Three Months Ended

December 31,

Twelve Months Ended

December 31,

  2017     2018     2017    

2018

 
Adjusted EBITDA reconciliation:
Net loss $ (349,977 ) $ (191,668 ) $ (3,445,066 ) $ (1,255,911 )
Add (deduct):
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
Income tax (benefit) expense (3,240 ) (352 ) (18,342 ) 2,547
Depreciation and amortization 18,786 22,682 61,288 91,648
Stock-based compensation expense 181,044 121,772 2,639,895 538,211
Payroll tax expense related to stock-based compensation 2,212 2,015 24,470 21,927
Spectacles inventory-related charges(1) 39,867
Reduction in force charges(2) 9,884
Lease exit charges(3)       (2,125 )       31,143  
Adjusted EBITDA $ (158,922 ) $ (50,363 ) $ (720,056 ) $ (575,637 )

Contacts

Investors and Analysts:
[email protected]

Press:
[email protected]

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