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How Snapchat Makes Money

Snapchat generates nearly all of its revenue from ads

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, Instagram, and WhatsApp, which are owned by Meta Platforms Inc. (FB); 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 reported its first quarter of positive net income as a public company in Q4 FY 2021.
  • Snap announced that it has halted all advertising sales to Russian and Belarusian entities amid Russia's recent invasion of Ukraine.

Snap's Financials

Snap announced in early February financial results for its 2021 fiscal year (FY), which ended Dec. 31, 2021. The company reported a net loss of $488.0 million, a significant improvement from the net loss of $944.8 million in FY 2020. The net loss was not unusual for Snap since it is a newer company focused on generating future growth. However, in the fourth quarter, Snap posted positive net income for the first time as a public company. Annual revenue rose 64.2% to $4.1 billion.

As much as 70% of the company's revenue originated in North America, which includes Mexico, the Caribbean, and Central America. The U.S. alone accounted for 68% of total revenue in FY 2021. The remaining 30% of revenue can be accounted for by two broad regional groupings: Europe (including Russia and Turkey) and other countries throughout the world, with the former group generating 16% of total revenue and the latter grouping accounting for 14% of the total. Revenue for North America in FY 2021 grew the fastest at a rate of 74.0%.

Snap celebrated its ten-year anniversary in 2020, 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. Snap went public through an initial public offering (IPO) in March 2017.

Both Snap's Daily Active Users (DAUs) and Average Revenue Per User (ARPU) grew in Q4 FY 2021 compared to the same quarter a year ago. The company finished the fourth quarter with an average of 319 million DAUs over the three-month period, 20.4% higher than the same quarter a year ago. ARPU was $4.06 for the quarter, up from $3.44 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 99% of the company's total $4.1 billion in revenue in FY 2021, unchanged from 99% in FY 2020. The company says it also generates a small and "not material" share of revenue from hardware products, including its Spectacles product. Spectacles are glasses that connect to the Snapchat app and allows users to make Snaps and record videos. The latest version of Spectacles overlays augmented reality (AR) Lenses onto the outer physical world. Snap earnings cannot be broken out because the company did not produce positive net income in FY 2021.

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; 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 AR Ads.

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. AR Ads include Sponsored Lenses or Sponsored Filters. The former provides users with branded augmented reality experiences. The latter provides entertaining, artistic overlays that allow users to interact with an advertiser's brand.

Snap’s Recent Developments

On March 1, 2022, Snap announced that it was halting all advertising on its platform in Russia, Belarus, and Ukraine as part of an attempt to curb media disinformation amid Russia's recent invasion of Ukraine. The company said that it was also stopping its advertising sales to all Russian and Belarusian entities as well as complying with all sanctions imposed on Russian businesses and individuals.

How Snapchat Reports Diversity and 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.

Article Sources

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  1. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 6.

  2. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 3.

  3. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Pages 9-10.

  4. Snap Inc. "Snap Inc. Announces Fourth Quarter and Full Year 2021 Financial Results," Page 1.

  5. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 52.

  6. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 81.

  7. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 11.

  8. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 48.

  9. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 15.

  10. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 80.

  11. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Pages 7 & 12.

  12. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 7.

  13. Snap Inc. "We Support Ukraine."

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