Social-networking giant Snapchat, now officially called Snap Inc. (SNAP), describes itself as a camera company. That's because its flagship product is a camera app called Snapchat that allows users to connect with family and friends, exchange photos ('Snaps') or videos ('Stories'), and chat. Snapchat is a platform for selling advertising space. That's how Snap, the company, generates substantially all of its revenue.

Snap faces significant competition from other companies focused on mobile engagement and advertising. That includes technology companies with digital platforms, and also companies in the more traditional sectors of print, radio, and television. Major competitors include Apple Inc. (AAPL); Facebook Inc. (FB), including its Instagram and WhatsApp offerings; Google, whose parent is Alphabet Inc. (GOOGL); and Twitter Inc. (TWTR).

Key Takeaways

  • Snap offers a mobile-phone camera application that allows users to take photos and videos, exchange them with family and friends, and chat.
  • Snap generates substantially all of its revenue through advertising.
  • Snap's net loss decreased YOY as revenue accelerated in Q3 2020.
  • Snap is not providing guidance for Q4 2020 amid the COVID-19 pandemic.

Snap's Financials

Snap posted a net loss of $199.9 million on $678.7 million of revenue in Q3 2020, which ended September 30, 2020. The net loss was not unusual considering the company has posted net losses in each of the past five years. Net losses are also typical of newer companies still focused on generating future growth. Snap's net loss in the third quarter marked a significant improvement from the $227.4 million net loss posted in the same three-month period a year ago. Also, revenue grew 52.1% for the quarter, a noticeable acceleration from the 45.3% and 43.1% annual growth rates posted in 2019 and 2018, respectively. 

As much as 69% of the company's revenue originated in North America, which includes Mexico, the Caribbean, and Central America. The U.S. alone accounted for 67% of total revenue in Q3 2020. Europe (including Russia and Turkey) and other countries throughout the world accounted for 16% and 15% of total revenue, respectively. Revenue for North America in Q3 2020 grew the fastest at a rate of 67.3%.

Snap celebrates its ten-year anniversary this year, having been founded in 2010 as a California limited liability company (LLC) named Future Freshman, LLC. After several name changes, the company eventually settled on its current name Snap Inc. in 2016.

Both Snap's Daily Active Users (DAUs) and Average Revenue (ARPU) grew in Q3 2020 compared to the same quarter a year ago. The company finished the third quarter with an average of 249 million DAUs over the three-month period, 18% higher than the same quarter a year ago. ARPU was $2.73 for the quarter, up from $2.12 in the year-ago quarter.

Snap's Business Segments

Snap has no individual business segments that it breaks out in its financial metrics. Substantially all of Snap's revenue is generated from advertising, which accounted for 98% of the company's total $1.7 billion in revenue in 2019, down from 99% in 2018 (Snap did not provide the share of total revenue attributable to advertising for Q3 2020). The company says it also generates a small and "not material" share of revenue from Spectacles, the company's only physical product. Spectacles are sunglasses that connect to the Snapchat app and allows users to make Snaps and record videos. Snap earnings cannot be broken out because the company does not produce positive net income.

Snap's camera-app, Snapchat, can be downloaded to mobile devices free of charge. All of its features can be accessed for free, including by creating Snaps; conversing with family and friends through Chat; and finding friends' Stories on the Discover feature. These features are designed to drive user engagement, which in turn helps to attract advertisers and drive revenue from advertising, which includes Snap Ads and Sponsored Creative Tools.

Snap Ads allows advertisers a way to tell stories similar to the way Snap's users do, while also providing additional features such as long-form video, and the ability for users to visit an advertiser's website or install an advertiser's app. Sponsored Creative Tools includes Sponsored Geofilters and Sponsored Lenses. The former allows users the ability to interact with an advertiser's brand. The latter provides users with branded augmented reality experiences.

Snap’s Recent Developments

Snap noted in its Q3 2020 press release that it was not providing its expectations for revenue or Adjusted EBITDA for Q4 2020 due to the uncertainties stemming from the COVID-19 pandemic.

Earlier this year, The Verge reported that Snap was testing new designs for its Snapchat app, which could accelerate its path to profitability if successful. One of the redesigns aims at improving user experience of the Snap Map. "We're exploring ways to streamline navigation across Snapchat, soliciting feedback from our community to inform future versions of our app," a Snap spokeswoman told The Verge, an online technology-news magazine operated by Vox Media.

The other potential big redesign is focused on breaking news headlines that are presented to users within the app. “We are in the very early stages of exploring how to evolve news offerings on Snapchat,” the company said.

How Snapchat Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Snapchat and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Snapchat releases. It shows Snapchat does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Snapchat does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.