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).
- 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 in 2020 as revenue growth accelerated.
- Snap recently acquired AI startup Ariel AI and location data startup StreetCred.
Snap posted a net loss of $944.8 million on $2.5 billion of revenue in its 2020 fiscal year (FY), which ended Dec. 31, 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 for the year marked a noticeable improvement from the $1.0 billion net loss posted in 2019. Also, revenue grew 46.1% for the year, marking a slight acceleration from the 45.3% and 43.1% annual growth rates posted in 2019 and 2018, respectively.
As much as 66% of the company's revenue originated in North America, which includes Mexico, the Caribbean, and Central America. The U.S. alone accounted for 64% of total revenue in 2020. The remaining 34% of revenue can be accounted for by two broad regional groupings: Europe (including Russia and Turkey) and other countries throughout the world, with each group generating 17% of total revenue. Revenue for North America in 2020 grew the fastest at a rate of 54.5%.
Snap celebrated its ten-year anniversary last 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 Q4 2020 compared to the same quarter a year ago. The company finished the fourth quarter with an average of 265 million DAUs over the three-month period, 21.5% higher than the same quarter a year ago. ARPU was $3.44 for the quarter, up from $2.58 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 $2.5 billion in revenue in 2020, up from 98% in 2019. The company says it also generates a small and "not material" share of revenue from Spectacles, the company's only physical product. Spectacles are glasses 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; 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 augmented reality (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 Jan. 26, 2021, it was reported that Snap acquired artificial intelligence (AI) startup Ariel AI. The U.K.-based firm, founded in 2018 by former Google and Facebook research scientists, specializes in augmented reality, which involves the overlaying of digital content and information onto the physical world. Snap did not disclose the value of the acquisition, but CNBC estimated that it was in the single-digit millions.
On Jan. 11, 2021, it was reported that Snap acquired StreetCred, a New York City startup working on a platform for location data. Snap is planning to leverage StreetCred's expertise in building map and location-related products. Snap's Snap Map currently allows users to view public snaps taken in a particular area and to share the location with friends. The financial terms of the deal were not disclosed.
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.