Snap crashes to Record Low As First-Quarter Earnings revenues fall short

Snap stock crashed to a record low Wednesday on a first-quarter earnings report that missed views on revenue, user growth and several other key metrics, as analysts slashed price targets. The company reported adjusted loss per share of 17 cents a share for first quarter, in line with analysts estimates, and group sales of $230.7 million, missed analysts’ estimates of $244.5 million.

Under pressure from Wall Street, Snap overhauled the look of Snapchat to make it more accessible to a wider audience. The change was met with widespread criticism from the app’s most loyal fans, but the company succeeded in adding more users than expected in the fourth quarter. Daily active users rose by 15% to 191 million, below analysts’ expectations. The slowdown in user growth is troubling for a company like Snap, which is predominantly an ad business. It needs the viewer numbers to convince brands to continue buying spots for their commercials.

Company executives acknowledged that the new design hurt results but said they were sticking with the plan to keep content from friends separate from other publishers. This approach will propel growth in the long run, they said.

CEO Evan Spiegel noted,

“Our redesign created some headwinds in our revenue this quarter by disrupting user behavior and creating some apprehension among our advertising partners. Our advertising business has continued to grow.”

The redesign was meant to draw in a broader audience but sparked criticism from users including celebrities Kylie Jenner and Chrissy Teigen. The changes also created some “apprehension” among advertisers, Spiegel said.

Chief Strategy Officer Imran Khan said the bad publicity surrounding the redesign made some advertisers rethink their use of Snapchat.

When there is a lot of negative news in the press every day, it does give people pause,” Khan said. Snapchat will counter that by providing better measurements of return on investment,

First Quarter 2018 Financial Highlights:

Three Months Ended

March 31,

Percent
20182017Change
(Unaudited)(dollars in thousands)
Revenue$230,666$149,64854%
Net loss(1)$(385,785)$(2,208,837)(83)%
Adjusted EBITDA(2)$(217,867)$(188,243)16%
Other Financial Highlights
Cash, cash equivalents, and marketable securities$1,821,353
Cash used in operating activities$(231,981)$(154,997)
Free Cash Flow(3)$(268,296)$(172,990)
Capital expenditures$(36,315)$(17,993)

 

(1)Net loss for the three months ended March 31, 2017 includes $2.0 bil

 

Snap 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.
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

Three Months Ended

March 31,

20182017
Revenue$230,666$149,648
Costs and expenses:
Cost of revenue196,798163,358
Research and development200,986805,848
Sales and marketing102,113219,733
General and administrative123,2991,174,476
Total costs and expenses623,1962,363,415
Loss from operations(392,530)(2,213,767)
Interest income6,1042,424
Interest expense(934)(695)
Other income (expense), net3,153187
Loss before income taxes(384,207)(2,211,851)
Income tax benefit (expense)(1,578)3,014
Net loss$(385,785)$(2,208,837)
Net loss per share attributable to Class A, Class B, and Class C common stockholders:
Basic$(0.30)$(2.31)
Diluted$(0.30)$(2.31)

 

SNAP INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

March 31,

2018

December 31,

2017

(Unaudited)
Assets
Current assets
Cash and cash equivalents$466,323$334,063
Marketable securities1,355,0301,708,976
Accounts receivable, net of allowance231,409279,473
Prepaid expenses and other current assets58,46944,282
Total current assets2,111,2312,366,794
Property and equipment, net191,043166,762
Intangible assets, net156,525166,473
Goodwill645,707639,882
Other assets77,52481,655
Total assets$3,182,030$3,421,566
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$28,562$71,194
Accrued expenses and other current liabilities272,795275,062
Total current liabilities301,357346,256
Other liabilities88,82582,983
Total liabilities390,182429,239
Commitments and contingencies
Stockholders’ equity
Class A non-voting common stock, $0.00001 par value. 3,000,000 shares authorized, 939,248 shares issued and outstanding at March 31, 2018, and 3,000,000 shares authorized, 883,022 shares issued and outstanding at December 31, 2017.99
Class B voting common stock, $0.00001 par value. 700,000 shares authorized, 96,956 shares issued and outstanding at March 31, 2018, and 700,000 shares authorized, 122,564 shares issued and outstanding at December 31, 2017.11
Class C voting common stock, $0.00001 par value. 260,888 shares authorized, 218,235 shares issued and outstanding at March 31, 2018, and 260,888 shares authorized and 216,616 shares issued and outstanding at December 31, 2017.22
Additional paid-in capital7,813,3257,634,825
Accumulated other comprehensive income (loss)20,96314,157
Accumulated deficit(5,042,452)(4,656,667)
Total stockholders’ equity2,791,8482,992,327
Total liabilities and stockholders’ equity$3,182,030$3,421,566

 

SNAP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Ended March 31,
20182017
Cash flows from operating activities
Net loss$(385,785)$(2,208,837)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization21,55312,450
Stock-based compensation133,2581,992,121
Deferred income taxes236(1,488)
Other(3,392)1,892
Change in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net of allowance48,69713,444
Prepaid expenses and other current assets(10,439)(43,436)
Other assets4,2042,715
Accounts payable(37,069)5,619
Accrued expenses and other current liabilities(10,149)69,204
Other liabilities6,9051,319
Net cash used in operating activities(231,981)(154,997)
Cash flows from investing activities
Purchases of property and equipment(36,315)(17,993)
Purchases of intangible assets(60)
Non-marketable investments(625)
Cash paid for acquisitions, net of cash acquired(18,013)
Purchases of marketable securities(477,213)(1,423,214)
Sales of marketable securities45,007
Maturities of marketable securities787,828445,047
Net cash provided by (used in) investing activities319,247(1,014,798)
Cash flows from financing activities
Proceeds from the exercise of stock options45,809594
Stock repurchases from employees for tax withholdings(551)(206,579)
Proceeds from issuance of Class A common stock in initial public offering, net of underwriting commissions2,657,797
Payments of initial public offering issuance costs(5,024)
Net cash provided by financing activities45,2582,446,788
Change in cash, cash equivalents, and restricted cash132,5241,276,993
Cash, cash equivalents, and restricted cash, beginning of period337,007163,336
Cash, cash equivalents, and restricted cash, end of period$469,531$1,440,329
Supplemental disclosures
Cash paid for income taxes$991$3,545
Supplemental disclosures of non-cash activities
Purchase consideration liabilities related to acquisitions$$1,901
Construction in progress related to financing lease obligations$425$257
Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions$445$(4,355)

 

SNAP INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, unaudited)
Three Months Ended

March 31,

20182017
Adjusted EBITDA reconciliation:
Net loss

$

(385,785

)

$

(2,208,837

)
Add (deduct):
Interest income(6,104)(2,424)
Interest expense934695
Other (income) expense, net(3,153)(187)
Income tax (benefit) expense1,578(3,014)
Depreciation and amortization(1)21,55312,450
Stock-based compensation expense(2)133,2581,992,121
Payroll tax expense related to stock-based compensation9,96820,953
Reduction in force charges(3)9,884
Adjusted EBITDA

$

(217,867

)

$

(188,243

)
(1) Total depreciation and amortization expense by function:
Three Months Ended

March 31,

20182017
Depreciation and amortization expense:
Cost of revenue$5,202$1,669
Research and development8,7915,755
Sales and marketing3,5692,600
General and administrative3,9912,426
Total$21,553$12,450

(2) Total stock-based compensation and related payroll tax expense by function:

Three Months Ended

March 31,

20182017
Stock-based compensation and related payroll tax expense:
Cost of revenue$410$20,026
Research and development84,330722,129
Sales and marketing17,373160,942
General and administrative41,1131,109,977
Total$143,226$2,013,074
(3) Reduction in force charges were related to a reduction in force plan we implemented during March 2018, impacting approximately 7% of our global headcount, primarily in engineering and sales. The charges are composed primarily of severance expense and related payroll tax expense. These charges are non-recurring and not reflective of underlying trends in our business. Additionally, we recognized a stock-based compensation forfeiture benefit of $31.5 million, which is included in the stock-based compensation expense line item above.

 

SNAP INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)

(In thousands, except per share amounts, unaudited)

Three Months Ended

March 31,

20182017
Free Cash Flow reconciliation:
Net cash used in operating activities$(231,981)$(154,997)
Less:
Purchases of property and equipment(36,315)(17,993)
Free Cash Flow$(268,296)$(172,990)
Three Months Ended

March 31,

20182017
Non-GAAP Net Loss reconciliation:
Net loss$(385,785)$(2,208,837)
Amortization of intangible assets10,8245,337
Stock-based compensation expense133,2581,992,121
Payroll tax expense related to stock-based compensation9,96820,953
Reduction in force charges(3)9,884
Income tax adjustments220(1,567)
Non-GAAP net loss$(221,631)$(191,993)
Weighted-average common shares – Diluted1,270,998955,003
Non-GAAP Diluted Net Loss Per Share reconciliation:
Diluted net loss per share$(0.30)$(2.31)
Non-GAAP adjustment to net loss0.132.11
Non-GAAP diluted net loss per share$(0.17)$(0.20)

 

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