Snap Inc. Announces Third Quarter 2022 Financial Results

Daily Active Users increased 19% year-over-year to 363 million

Revenue increased 6% year-over-year to $1,128 million

Operating cash flow was $56 million and Free Cash Flow was $18 million

Snap Inc. (NYSE: SNAP) today announced financial results for the quarter ended September 30, 2022.

"This quarter we took action to further focus our business on our three strategic priorities: growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality," said Evan Spiegel, CEO. "The growth of our community to 363 million daily active users, an increase of 19% year-over-year, continues to expand our long-term opportunity as we navigate this volatile macroeconomic environment."

Snap Inc. also announced today its board of directors has authorized a stock repurchase program of up to $500 million of its Class A common stock. Repurchases of the Class A common stock may be made on a discretionary basis from time to time, either through open market transactions (including through Rule 10b5-1 trading plans) or through privately negotiated transactions in accordance with applicable securities laws. The timing and actual number of shares repurchased will depend on a variety of factors, including stock price, trading volume, market and economic conditions, and other general business considerations. Repurchases under the program have been authorized for the next 12 months but the program may be modified, suspended, or terminated at any time.

The goal of the program is to utilize the company’s strong balance sheet to opportunistically offset a portion of the dilution related to the issuance of restricted stock units to employees as part of the overall compensation program designed to foster an ownership culture.

Repurchases under this program will be funded from existing cash and cash equivalents. As of September 30, 2022, Snap had $4.4 billion in cash, cash equivalents, and marketable securities.

Q3 2022 Financial Summary

• Revenue increased 6% to $1,128 million, compared to the prior year.
• Net loss was $360 million, including restructuring charges of $155 million, compared to $72 million in the prior year.
• Adjusted EBITDA was $73 million, compared to $174 million in the prior year.
• Operating cash flow was $56 million, compared to $72 million in the prior year.
• Free Cash Flow was $18 million, compared to $52 million in the prior year.

Q3 2022 Summary & Key Highlights

We grew and deepened our engagement with our community:

• DAUs were 363 million in Q3 2022, an increase of 57 million, or 19% year-over-year.
• DAUs increased sequentially and year-over-year in each of North America, Europe, and Rest of World.
• Total time spent watching Spotlight content grew 55% year-over-year.
• Daily average time spent for Snapchatters 35 and older watching Shows and publisher content increased by more than 40% year-over-year.
• We expanded Snapchat for Web, making it available to our entire community to stay connected with friends and family when they’re at their computers.
• We introduced Snapchat’s Family Center, a new tool to help parents gain insight into who their teens are chatting with on Snapchat while protecting their privacy.
• We introduced our new Lock Screen Widget, available now with iOS16, which makes conversations with friends accessible with one tap from the lock screen.
• We launched Snapchat Sounds Creator Fund, providing monthly grants designed to recognize emerging, independent artists for the critical role they play in driving video creations, inspiring internet trends, and defining cultural moments.
• We announced the inaugural class of our Black Creator Accelerator, our first accelerator program designed to support and spotlight emerging Black creators on their journey to make content creation a full-time career.

We are focused on expanding and diversifying our revenue growth:

• Snapchat+, our subscription service for exclusive, experimental, and pre-release features, reached over 1.5 million paying subscribers in Q3 and is now offered in over 170 countries.
• We joined Walmart Connect as an Innovation Partner, enabling advertisers to reach our large and engaged audience through our video and augmented reality ad formats.
• Clothing retailer American Eagle, leveraged catalog-powered Shopping Lenses that allowed Snapchatters to engage with and even purchase individual items in augmented reality, driving more than 11 million impressions with an average playtime of nearly 30 seconds.
• Furniture retailer Skeidar developed a Lens where Snapchatters could explore different types of outdoor garden furniture in AR, resulting in an increase of +21 points in brand favorability and +14 points in action intent, which in turn drove a 14x increase in return on ad spend.
• We continued investing in Dynamic Ads for Commerce and Travel, focusing on catalog onboarding experience improvements, machine learning improvements in ranking and delivery, and ad format updates that improve outcomes for advertisers.
• We continued investments in ranking and optimization to deliver measurable business outcomes to advertisers. We rolled out more than 15 new machine learning models, which improved performance, pricing, and conversion rate of App and Web-related bidding goals.
• We improved Snap Pixel performance and Conversions API (CAPI) coverage and the quality of server-to-server integrations by collaborating closely with customers and starting a program focused on our enterprise clients.
• We launched the capability to execute 2-layered Lift tests, which enables advertisers to measure aggregate ROI while simultaneously running A/B testing. We also improved in-app survey sample collection, which enables brand advertisers to more confidently measure the returns of their brand campaigns.
• We invested in our cross-border solutions which enable global advertisers to improve the personalization of ads for Snapchatters through multi-language ad sets and new first party location targeting options.

We invested in our augmented reality platform:

• We unveiled several new features and capabilities in our latest Lens Studio release, including Spatial Persistence, Two Hands Tracking, Voice ML’s Question Answering Service, and Face Occlusion.
• We made significant strides in the expansion and testing of our AR creation suite, and we have now onboarded over 15 new beta partners who are already designing Shopping Lenses created with our AR Image technology.
• To kick off the LA Rams season, we partnered with the LA Rams and SoFi Stadium to bring Snapchat Lenses to arena screens through a unique Camera Kit integration that applies AR experiences within the venue and broadcast environments, in 4K and real time.
• In celebration of Vogue’s 130th anniversary, we collaborated on several custom-built AR experiences for Snapchat x Vogue World in New York, leveraging our latest Snap AR technology, including sky segmentation and surface tracking, to heighten the realism of the effects.
• To celebrate HBO’s premiere of House of the Dragon, we worked with Lens Creators around the world to build custom Landmarkers that brought the show’s dragons off the TV and into the sky.
• We partnered with the German government to raise awareness about the climate crisis and the overwhelming amount of plastic waste produced each year by launching two new AR Lenses that help give the Snapchat community a voice on this important topic.

Financial Guidance

Given uncertainties related to the operating environment, we are not providing our expectations for revenue or adjusted EBITDA for the fourth quarter of 2022.

Conference Call Information

Snap Inc. will host a conference call to discuss the results at 2:30 p.m. Pacific / 5:30 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 its websites (including snap.com and investor.snap.com) 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; 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.

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, our stock repurchase program, future stock dividends, business strategy and plans, user growth and engagement, product initiatives, objectives of management for future operations, and advertiser and partner offerings, 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, including our financial outlook, geo-political conflicts, and the COVID-19 pandemic, that we believe may continue to 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 ability to attain and sustain profitability; 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, regulations, and executive actions; our ability to maintain, protect, and enhance our intellectual property; our ability to succeed in existing and new market segments; our ability to attract and retain qualified and key personnel; our ability to repay outstanding debt; future acquisitions, divestitures, or investments; and the potential adverse impact of climate change, natural disasters, health epidemics, macroeconomic conditions, and war or other armed conflict, as well as risks, uncertainties, and other factors described in “Risk Factors” and elsewhere in our most recent periodic report filed with the U.S. Securities and Exchange Commission, or SEC, which is available on the SEC’s website at www.sec.gov. Additional information will be made available in Snap Inc.’s periodic report that will be filed with the SEC for the period covered by this press release 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, including future developments related to geo-political conflicts, the COVID-19 pandemic, and macroeconomic conditions, 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; 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 use the non-GAAP financial measure of non-GAAP net income (loss), which is defined as net income (loss); excluding amortization of intangible assets; stock-based compensation expense; payroll and other tax expense related to stock-based compensation; certain other non-cash or non-recurring items impacting net income (loss) from time to time; and related income tax adjustments. Non-GAAP net income (loss) and weighted average diluted shares are then used to calculate non-GAAP diluted net income (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.

Total depreciation and amortization expense by function: