Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors,” “Note Regarding Forward-Looking Statements,” and “Note Regarding User Metrics and Other Data.”
The following generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussion of historical items and year-to-year comparisons between 2023 and 2022 that are not included in this discussion can be found in “Management ’ s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 7, 2024.
Overview of Full Year 2024 Results
Our key user metrics and financial results for fiscal year 2024 are as follows:
User Metrics
• Daily Active Users, or DAUs, increased 9% year-over-year to 453 million in Q4 2024.
• Average revenue per user, or ARPU, was $3.44 in Q4 2024 compared to $3.29 in Q4 2023.
Financial Results
• Revenue was $5.4 billion, compared to $4.6 billion in the prior year, an increase of 16% year-over-year.
• Total costs and expenses were $6.1 billion, compared to $6.0 billion in the prior year.
• Net loss was $0.7 billion, compared to $1.3 billion in the prior year .
• Adjusted EBITDA was $508.6 million, compared to $161.6 million in the prior year.
• Diluted net loss per share was $(0.42), compared to $(0.82) in the prior year.
• Cash provided by operating activities was $413.5 million, compared to $246.5 million in the prior year.
• Free Cash Flow was $218.7 million, compared to $34.8 million in the prior year.
• Cash, cash equivalents, and marketable securities were $3.4 billion as of December 31, 2024.
Business and Macroeconomic Conditions
We periodically make changes to our business and priorities. In recent years, we conducted a strategic reprioritization to realign our focus on three strategic priorities: growing our community and deepening their engagement with our products, accelerating and diversifying our revenue growth, and investing in the future of augmented reality. We believe that we can be successful in our current operating environment, with various macroeconomic factors impacting our business, by rigorously prioritizing our investments and continuing to engage our community with our products while driving success for our advertising partners. However, the impact of our strategic reprioritization and recent restructurings is difficult to predict.
Macroeconomic factors such as labor shortages and disruptions, supply chain disruptions, inflation, changes in interest and foreign currency exchange rates, banking instability, tariffs, war and other armed conflict, and other risks and uncertainties have in the past and may continue to cause logistical challenges, increased input costs, and inventory constraints for our advertisers, which in turn may cause our advertisers to halt or decrease advertising spending on our platform. Such macroeconomic factors may also negatively impact, in the short-term or long-term, the global economy, advertising ecosystem, our customers and their budgets with us, user engagement, other user metrics, and our business, financial condition, and results of operations.
In addition, competition for advertising dollars has increased and demand growth on our advertising platform has slowed. We expect to continue to experience increased competition, which may result in reduced advertising demand, and
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could adversely affect our revenue growth, pricing, business, financial condition, and results of operations. Demand has also been disrupted by recent changes we made to our advertising platform, and, in the future, we may continue to experience adverse impacts to our revenue growth as a result of these changes.
Our revenue, particularly in North America, has further been impacted by platform policy changes and restrictions that affected our targeting, measurement, and optimization capabilities, and in turn our ability to measure the effectiveness of advertisements on our services. This has resulted in, and in the future is likely to continue to result in, reduced advertising revenue, especially if we are unable to mitigate these developments.
We compete with other companies in every aspect of our business. We must compete effectively for users and advertisers to grow our business and increase our revenue. These and other risks and uncertainties are further described in the sections titled “Competition” in Part I, Item 1. Business, and “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K.
Trends in User Metrics
We define a DAU as a registered and logged-in Snapchat user who visits Snapchat through our applications or websites at least once during a defined 24-hour period. We define ARPU as quarterly revenue divided by the average DAUs. We assess the health of our business by measuring DAUs and ARPU because we believe that these metrics are important ways for both management and investors to understand engagement and monitor the performance of our platform. We also measure ARPU because we believe that this metric helps our management and investors to assess the extent to which we are monetizing our service.
User Engagement
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. DAUs are broken out by geography because markets have different characteristics . We had 453 million DAUs on average in the fourth quarter of 2024, an increase of 39 million, or 9%, from the fourth quarter of 2023.
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Quarterly Average Daily Active Users (1)
(in millions)
Global
YoY growth:
17% 15% 14% 12% 10% 10% 9% 9% 9%
(1) Numbers may not foot due to rounding.
North America (2)
Europe (3)
YoY growth:
3% 3% 2% 1% —% (1)% —% —% (1)% 12% 10% 9% 7% 4% 4% 3% 4% 4%
(2) North America includes Mexico, the Caribbean, and Central America.
(3) Europe includes Russia and Turkey.
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Rest of World
YoY growth: 31 % 27 % 25 % 21 % 19 % 19 % 16 % 16 % 17 %
Monetization
We recorded revenue of $5.4 billion for the year ended December 31, 2024, compared to revenue of $4.6 billion for the year ended December 31, 2023, an increase of 16% year-over-year. We monetize our business primarily through advertising. Our advertising products include Snap Ads and AR Ads.
We measure our business using ARPU because it helps us understand the rate at which we are monetizing our daily user base. ARPU was $3.44 in the fourth quarter of 2024, compared to $3.29 in the fourth quarter of 2023. For purposes of calculating ARPU, revenue by user geography is apportioned to each region based on a determination of the geographic location in which advertising impressions are delivered, as this approximates revenue based on user activity. This differs from the presentation of our revenue by geography in the notes to our consolidated financial statements, where revenue is based on the billing address of the advertising customer.
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Quarterly Average Revenue per User
Global
North America (1)
Europe (2)
(1) North America includes Mexico, the Caribbean, and Central America.
(2) Europe includes Russia and Turkey. Effective March 2022, we halted advertising sales to Russian and Belarusian entities.
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Rest of World
Results of Operations
Components of Results of Operations
Revenue
We generate substantially all of our revenue through the sale of our advertising products, which primarily include Snap Ads and AR Ads, referred to as advertising revenue. Snap Ads may be subject to revenue sharing arrangements between us and the content partner. We also generate revenue from subscriptions and sales of hardware products. Sales of hardware products are reported net of allowances for returns.
Cost of Revenue
Cost of revenue includes payments for infrastructure, content and developer partner costs, and advertiser partner and other costs. Infrastructure costs primarily consist of payments to th ird-party infrastructure partners for hosting our products, which include expenses related to storage, computing, and bandwidth. Content and developer partner costs primarily consist of fees paid to our content creators and publisher partners who share content on our platform through revenue sharing arrangements. Under these arrangements, we pay a portion of the fees we receive from advertisers for Snap Ads that are displayed within partner content on Snapchat. Advertising partner and other costs primarily consist of payments to third-party partners for fulfillment services, credit card and other transaction processing fees, and other expenses directly related to providing our services. Cost of revenue includes personnel-related costs, including salaries, benefits, and stock-based compensation expense for our employees engaged in the delivery of our services. Cost of revenue also includes facilities and other supporting overhead costs, including depreciation and amortization, and inventory costs.
Research and Development Expenses
Research and development expenses primarily consist of personnel-related costs, including salaries, benefits, and stock-based compensation expense for our engineers, designers, and other employees engaged in the research and development of our products. Research and development expenses also include facilities and other supporting overhead costs, including depreciation and amortization. Research and development costs are expensed as incurred.
Sales and Marketing Expenses
Sales and marketing expenses primarily consist of personnel-related costs, including salaries, benefits, commissions, and stock-based compensation expense for our employees engaged in sales and sales support, business development, media, marketing, corporate partnerships, and customer service functions. Sales and marketing expenses also include costs incurred for advertising, market research, tradeshows, branding, marketing, promotional expense, and public relations, as well as facilities and other supporting overhead costs, including depreciation and amortization.
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General and Administrative Expenses
General and administrative expenses primarily consist of personnel-related costs, including salaries, benefits, and stock-based compensation expense for our finance, legal, information technology, human resources, and other administrative teams. General and administrative expenses also include facilities and supporting overhead costs, including depreciation and amortization, and external professional services.
Interest Income
Interest income primarily consists of interest earned on our cash, cash equivalents, and marketable securities.
Interest Expense
Interest expense primarily consists of interest expense associated with convertible notes and commitment fees related to our revolving credit facility.
Other Income (Expense), Net
Other income (expense), net primarily consists of gains and losses on strategic investments, marketable securities, and foreign currency transactions.
Income Tax Benefit (Expense)
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rates will vary depending on changes in the valuation of our deferred tax assets and liabilities, the relative proportion of foreign to domestic income, use of tax credits, and changes in tax laws.
Adjusted EBITDA
We define Adjusted EBITDA 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 items impacting net income (loss) from time to time. We consider the exclusion of these items in calculating Adjusted EBITDA to provide a useful measure for period-to-period comparisons of our business and for investors and others to evaluate our operating results in the same manner as does our management. See “Non-GAAP Financial Measures” for additional information and a reconciliation of net loss to Adjusted EBITDA.
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Discussion of Results of Operations
The following table sets forth our consolidated statements of operations data:
Year Ended December 31,
2024 2023 2022
(in thousands)
Consolidated Statements of Operations Data:
Revenue $ 5,361,398 $ 4,606,115 $ 4,601,847
Costs and expenses (1) (2) :
Cost of revenue 2,474,237 2,114,117 1,815,342
Research and development 1,691,683 1,910,862 2,109,800
Sales and marketing 1,063,675 1,122,092 1,118,746
General and administrative 919,097 857,423 953,265
Total costs and expenses 6,148,692 6,004,494 5,997,153
Operating loss (787,294) (1,398,379) (1,395,306)
Interest income 153,466 168,394 58,597
Interest expense (21,552) (22,024) (21,459)
Other income (expense), net (16,846) (42,414) (42,529)
Loss before income taxes (672,226) (1,294,423) (1,400,697)
Income tax benefit (expense) (25,630) (28,062) (28,956)
Net loss $ (697,856) $ (1,322,485) $ (1,429,653)
Adjusted EBITDA (3)
$ 508,605 $ 161,577 $ 377,573
(1) Stock-based compensation expense included in the above line items:
Year Ended December 31,
2024 2023 2022
(in thousands)
Stock-based compensation expense:
Cost of revenue $ 6,034 $ 9,555 $ 12,288
Research and development 683,830 893,026 970,746
Sales and marketing 216,672 255,688 203,092
General and administrative 134,487 165,735 201,661
Total $ 1,041,023 $ 1,324,004 $ 1,387,787
(2) Depreciation and amortization expense included in the above line items:
Year Ended December 31,
2024 2023 2022
(in thousands)
Depreciation and amortization expense:
Cost of revenue $ 6,110 $ 12,751 $ 24,235
Research and development 99,656 106,278 98,041
Sales and marketing 19,947 26,161 67,169
General and administrative 32,361 23,251 12,728
Total $ 158,074 $ 168,441 $ 202,173
(3) See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.
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The following table sets forth the components of our consolidated statements of operations data for each of the periods presented as a percentage of revenue:
Year Ended December 31,
2024 2023 2022
Consolidated Statements of Operations Data:
Revenue 100 % 100 % 100 %
Costs and expenses:
Cost of revenue 46 46 39
Research and development 32 41 46
Sales and marketing 20 24 24
General and administrative 17 19 21
Total costs and expenses 115 130 130
Operating loss (15) (30) (30)
Interest income 3 4 1
Interest expense (1) (1) —
Other income (expense), net — (1) (1)
Loss before income taxes (13) (28) (30)
Income tax benefit (expense) — (1) (1)
Net loss (13) % (29) % (31) %
Revenue
Year Ended December 31, 2024 vs 2023
Change
2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Revenue $ 5,361,398 $ 4,606,115 $ 4,601,847 $ 755,283 16 % $ 4,268 — %
2024 compared to 2023
Revenue for the year ended December 31, 2024 increased $755.3 million compared to the same period in 2023. The increase in advertising revenue was primarily driven by an increase in global advertising impressions volume of approximately 16% compared to the prior year, partially offset by a decrease in the cost per advertising impression of approximately 4%. The increase in global advertising impressions volume was driven by expanded advertising delivery within Spotlight and Creator Stories and the decrease in the cost per advertising impression was due to inventory growth exceeding advertising demand growth. The increase in revenue was also driven by higher subscription revenue due to an increase in the number of subscribers.
Cost of Revenue
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Cost of Revenue $ 2,474,237 $ 2,114,117 $ 1,815,342 $ 360,120 17 % $ 298,775 16 %
2024 compared to 2023
Cost of revenue for the year ended December 31, 2024 increased $360.1 million compared to the same period in 2023. The increase was primarily driven by a $269.1 million increase in infrastructure costs, attributable to DAU growth of
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9% compared to the prior year as well as investments in machine learning and AI. The increase in infrastructure costs was partially offset by improvements to our cloud infrastructure unit costs resulting from engineering efficiencies and pricing improvements.
Research and Development Expenses
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Research and Development Expenses $ 1,691,683 $ 1,910,862 $ 2,109,800 $ (219,179) (11) % $ (198,938) (9) %
2024 compared to 2023
Research and development expenses for the year ended December 31, 2024 decreased $219.2 million compared to the same period in 2023. The decrease was primarily driven by lower employee compensation, which included a $209.2 million decrease in stock-based compensation expenses. The lower employee compensation was due to a decrease in research and development headcount compared to the prior year as well as the diminished impact of refresh equity grants relative to the prior year. The decrease was partially offset by $38.8 million in restructuring charges related to the 2024 restructuring.
Sales and Marketing Expenses
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Sales and Marketing Expenses $ 1,063,675 $ 1,122,092 $ 1,118,746 $ (58,417) (5) % $ 3,346 — %
2024 compared to 2023
Sales and marketing expenses for the year ended December 31, 2024 decreased $58.4 million compared to the same period in 2023. The decrease was primarily driven by lower employee compensation, which included a $39.0 million decrease in stock-based compensation expenses. The lower employee compensation was primarily due to a decrease in sales and marketing headcount compared to the prior year. The decrease was partially offset by increased marketing investments, which included a $32.8 million increase in advertising costs, and $19.9 million in restructuring charges related to the 2024 restructuring.
General and Administrative Expenses
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
General and Administrative Expenses $ 919,097 $ 857,423 $ 953,265 $ 61,674 7 % $ (95,842) (10) %
2024 compared to 2023
General and administrative expenses for the year ended December 31, 2024 increased $61.7 million compared to the same period in 2023. The increase was primarily driven by higher spend on external professional services, increased facilities costs, and $10.3 million in restructuring charges related to the 2024 restructuring. The increase was partially offset
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by a $31.2 million decrease in stock-based compensation expenses, driven by a decrease in general and administrative headcount compared to the prior year.
Interest Income
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Interest Income $ 153,466 $ 168,394 $ 58,597 $ (14,928) (9) % $ 109,797 187 %
2024 compared to 2023
Interest income for the year ended December 31, 2024 decreased $14.9 million compared to the same period in 2023, primarily driven by lower invested cash balances throughout the year and lower interest rates from macroeconomic events.
Interest Expense
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Interest Expense $ (21,552) $ (22,024) $ (21,459) $ 472 (2) % $ (565) 3 %
2024 compared to 2023
Interest expense for the year ended December 31, 2024 decreased $0.5 million compared to the same period in 2023. Interest expense for all periods primarily consists of amortization of debt issuance costs and contractual interest expense.
Other Income (Expense), Net
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Other Income (Expense), Net $ (16,846) $ (42,414) $ (42,529) $ 25,568 60 % $ 115 — %
2024 compared to 2023
Other expense, net for the year ended December 31, 2024 was $16.8 million, compared to other expense, net of $42.4 million for the same period in 2023 . Other expense, net for the current year was primarily the result of $7.4 million in net losses on strategic investments and a $6.7 million net loss on extinguishment associated with the Note Repurchases, which is discussed within Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Other expense, net in the prior year was primarily the result of $27.1 million in net losses on strategic investments and $6.7 million in net losses on publicly traded securities classified as marketable securities.
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Income Tax Benefit (Expense)
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Income Tax Benefit (Expense) $ (25,630) $ (28,062) $ (28,956) $ 2,432 9 % $ 894 3 %
Effective Tax Rate (3.8) % (2.2) % (2.1) %
2024 compared to 2023
Income tax expense was $25.6 million for the year ended December 31, 2024 , compared to $28.1 million for the same period in 2023 . Our effective tax rate differs from the U.S. statutory tax rate primarily due to valuation allowances on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized.
For additional discussion, see Note 12 to our consolidated financial statements included in “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
Net Loss and Adjusted EBITDA
Year Ended December 31, 2024 vs 2023
Change 2023 vs 2022
Change
2024 2023 2022 $ % $ %
(dollars in thousands)
Net Loss $ (697,856) $ (1,322,485) $ (1,429,653) $ 624,629 47 % $ 107,168 7 %
Adjusted EBITDA $ 508,605 $ 161,577 $ 377,573 $ 347,028 215 % $ (215,996) (57) %
2024 compared to 2023
Net loss for the year ended December 31, 2024 was $697.9 million, compared to $1,322.5 million for the same period in 2023. The decrease in net loss was primarily the result of the changes in revenues and expenses discussed above.
Adjusted EBITDA for the year ended December 31, 2024 was $508.6 million, compared to $161.6 million for the same period in 2023. The increase in Adjusted EBITDA was attributable to increased revenue, lower research and development expenses, and lower sales and marketing expenses, partially offset by higher cost of revenue and general and administrative expenses.
For a discussion of the limitations associated with using Adjusted EBITDA rather than GAAP measures, and a reconciliation of this measure to net loss, see “Non-GAAP Financial Measures.”
Liquidity and Capital Resources
Capital Resources
Cash, cash equivalents, and marketable securities were $3.4 billion as of December 31, 2024, primarily consisting of cash on deposit with banks and highly liquid investments in U.S. government and agency securities, money market funds, corporate debt securities, certificates of deposit, commercial paper, and publicly traded equity securities. Our primary source of liquidity is cash generated through financing activities. Our primary uses of cash include operating costs such as personnel-related costs and the infrastructure costs of the Snapchat application, facility-related capital spending, and acquisitions and investments. There are no known material subsequent events that could have a material impact on our cash or liquidity. We may contemplate and engage in merger and acquisition activity that could materially impact our liquidity and capital resource position.
As of December 31, 2024, approximately 3% of our cash, cash equivalents, and marketable securities was held outside the United States. These amounts were primarily held in Canada and the United Kingdom and are utilized to fund our international operations. Cash held outside the United States may be repatriated, subject to certain limitations, and
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would be available to be used to fund our domestic operations. However, repatriation of funds may result in additional tax liabilities. We believe our existing cash balance in the United States is sufficient to fund our working capital needs.
In May 2022, we entered into a five-year senior unsecured revolving credit facility, or Credit Facility, with certain lenders that allows us to borrow up to $1.05 billion to fund working capital and general corporate-purpose expenditures. Loans bear interest, at our option, at a rate equal to (i) a term secured overnight financing rate, or SOFR, plus 0.75% or the base rate, if selected by us, for loans made in U.S. dollars, (ii) the Sterling overnight index average plus 0.7826% for loans made in Sterling, or (iii) foreign indices as stated in the credit agreement plus 0.75% for loans made in other permitted foreign currencies. The base rate is defined as the greatest of (i) the Wall Street Journal prime rate, (ii) the greater of the (a) federal funds rate and (b) the overnight bank funding rate, plus 0.50%, and (iii) the applicable SOFR for a period of one month (but not less than zero) plus 1.00. The Credit Facility also contains an annual commitment fee of 0.10% on the daily undrawn balance of the facility. As of December 31, 2024, we had $80.7 million in the form of outstanding standby letters of credit, with no amounts outstanding under the Credit Facility.
Material Cash Requirements
Convertible Notes
In May 2024, we entered into a purchase agreement for the sale of an aggregate of $750.0 million principal amount of convertible senior notes due in 2030. The net proceeds from the issuance of the 2030 Notes were $671.5 million, net of debt issuance costs and the 2030 Capped Call Transactions discussed further in Note 7 in our consolidated financial statements. The 2030 Notes mature on May 1, 2030 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The sale price requirement for conversion was not satisfied as of December 31, 2024 and as a result, the 2030 Notes will not be eligible for optional conversion during the first quarter of 2025. As of December 31, 2024, the outstanding principal of the 2030 Notes was $750.0 million.
In February 2022, we entered into a purchase agreement for the sale of an aggregate of $1.50 billion principal amount of convertible senior notes due in 2028. The net proceeds from the issuance of the 2028 Notes were $1.31 billion, net of debt issuance costs and the 2028 Capped Call Transactions discussed further in Note 7 in our consolidated financial statements. The 2028 Notes mature on March 1, 2028 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The sale price requirement for conversion was not satisfied as of December 31, 2024 and as a result, the 2028 Notes will not be eligible for optional conversion during the first quarter of 2025. As of December 31, 2024, the outstanding principal of the 2028 Notes was $1.50 billion.
In April 2021, we entered into a purchase agreement for the sale of an aggregate of $1.15 billion principal amount of convertible senior notes due in 2027. The net proceeds from the issuance of the 2027 Notes were $1.05 billion, net of debt issuance costs and the 2027 Capped Call Transactions discussed further in Note 7 in our consolidated financial statements. The 2027 Notes mature on May 1, 2027 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The sale price requirement for conversion was not satisfied as of December 31, 2024 and as a result, the 2027 Notes will not be eligible for optional conversion during the first quarter of 2025. As of December 31, 2024, the outstanding principal of the 2027 Notes was $1.15 billion.
In April 2020, we entered into a purchase agreement for the sale of an aggregate of $1.0 billion principal amount of convertible senior notes due in 2025. The net proceeds from the issuance of the 2025 Notes were $888.6 million, net of debt issuance costs and the 2025 Capped Call Transactions discussed further in Note 7 in our consolidated financial statements. The 2025 Notes mature on May 1, 2025 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The sale price requirement for conversion was not satisfied as of December 31, 2024 and as a result, the 2025 Notes will not be eligible for optional conversion until February 1, 2025. On or after February 1, 2025, the 2025 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2025 Notes are convertible at a conversion rate of 46.1233 shares of Class A common stock per $1,000 principal amount of 2025 Notes, which is equivalent to a conversion price of approximately $21.68 per share of our Class A common stock. As of December 31, 2024, the outstanding principal of the 2025 Notes was $36.2 million.
In August 2019, we entered into a purchase agreement for the sale of an aggregate of $1.265 billion principal amount of convertible senior notes due in 2026. The net proceeds from the issuance of the 2026 Notes were $1.15 billion, net of debt issuance costs and the 2026 Capped Call Transactions discussed further in Note 7 in our consolidated financial statements. The 2026 Notes mature on August 1, 2026 unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The sale price requirement for conversion was not satisfied as of December 31, 2024 and as a
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result, the 2026 Notes will not be eligible for optional conversion during the first quarter of 2025. As of December 31, 2024, the outstanding principal of the 2026 Notes was $249.8 million.
Contractual Commitments
We have non-cancelable contractual agreements primarily related to the hosting of our data processing, storage, and other computing services, as well as lease, content and developer partner, and other commitments. We had $4.9 billion in commitments as of December 31, 2024, primarily due within three years. For additional discussion on our leases, see Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Stock Repurchases
In October 2024, our board of directors authorized a stock repurchase program of up to $500.0 million of our Class A common stock. We did not repurchase any shares under this program in the fourth quarter of 2024. Accordingly, as of December 31, 2024, the remaining availability under the stock repurchase authorization was $500.0 million.
Contingencies
We are involved in claims, lawsuits, tax matters, government investigations, and proceedings arising in the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. We also disclose material contingencies when we believe that a loss is not probable but reasonably possible. Significant judgment is required to determine both probability and the estimated amount. Such claims, suits, and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Many of these legal and tax contingencies can take years to resolve. Should any of these estimates and assumptions change or prove to be incorrect, it could have a material impact on our results of operations, financial position, and cash flows.
We believe our existing cash balance is sufficient to fund our ongoing working capital, investing, and financing requirements for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development efforts, the introduction of new features, products, and acquisitions, and continued user engagement. We continually evaluate opportunities to issue or repurchase equity or debt securities, obtain, retire, or restructure credit facilities or financing arrangements, or declare dividends for strategic reasons or to further strengthen our financial position.
Sources and Uses of Cash and Related Trends
The following table sets forth the major components of our consolidated statements of cash flows for the periods presented:
Year Ended December 31,
2024 2023 2022
(in thousands)
Net cash provided by (used in) operating activities $ 413,480 $ 246,521 $ 184,614
Net cash provided by (used in) investing activities (717,084) 570,954 (1,062,275)
Net cash provided by (used in) financing activities (428,624) (458,789) 306,714
Change in cash, cash equivalents, and restricted cash $ (732,228) $ 358,686 $ (570,947)
Free Cash Flow (1)
$ 218,654 $ 34,794 $ 55,308
(1) For information on how we define and calculate Free Cash Flow, and a reconciliation to net cash provided by (used in) operating activities to Free Cash Flow, see “Non-GAAP Financial Measures.”
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities was $413.5 million for the year ended December 31, 2024, compared to net cash provided by operating activities of $246.5 million for the year ended December 31, 2023, resulting primarily from our net loss, adjusted for non-cash items, including stock-based compensation expense of $1,041.0 million and depreciation and amortization expense of $158.1 million. Net cash provided by operating activities for the year ended December 31, 2024 was also driven by a $150.4 million increase in accrued expenses and other current liabilities, offset by a
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$100.7 million decrease in accounts payable and a $94.0 million increase in accounts receivables due to the timing of collections and an increase in billings in the period.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities was $717.1 million for the year ended December 31, 2024, compared to net cash provided by investing activities of $571.0 million for the year ended December 31, 2023. Our investing activities for the year ended December 31, 2024 primarily consisted of purchases of marketable securities of $2.3 billion and purchases of property and equipment of $194.8 million, partially offset by maturities of marketable securities of $1.4 billion and sales of marketable securities of $354.3 million. Our investing activities for the year ended December 31, 2023 primarily consisted of maturities of marketable securities of $2.4 billion and sales of marketable securities of $459.5 million, partially offset by purchases of marketable securities of $2.0 billion and purchases of property and equipment of $211.7 million.
Net Cash Provided by (Used in) Financing Activities
Net cash used in financing activities was $428.6 million for the year ended December 31, 2024, compared to net cash used in financing activities of $458.8 million for the year ended December 31, 2023. Our financing activities for the year ended December 31, 2024 primarily consisted of the Note Repurchases for $859.0 million, repurchases of our Class A common stock for $311.1 million, and the purchase of the 2030 Capped Call Transactions for $68.9 million, partially offset by the issuance of the 2030 Notes for net proceeds of $740.4 million and the termination of the 2025 Capped Call Transactions for proceeds of $62.7 million. Our financing activities for the year ended December 31, 2023 primarily consisted of $189.4 million of repurchases of our Class A common stock and $270.4 million of deferred payments for acquisitions completed in prior periods.
Free Cash Flow
Free Cash Flow was $218.7 million for the year ended December 31, 2024, compared to $34.8 million for the year ended December 31, 2023. Free Cash Flow in all periods was composed of net cash provided by operating activities, resulting primarily from net loss, adjusted for non-cash items and changes in working capital. Free Cash Flow also included purchases of property and equipment of $194.8 million for the year ended December 31, 2024, compared to $211.7 million for the year ended December 31, 2023. See “Non-GAAP Financial Measures.”
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 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 believe that both Free Cash Flow and Adjusted EBITDA provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater
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transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting the non-GAAP measures of Free Cash Flow and Adjusted EBITDA 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.
These non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to the closest comparable GAAP measure. Some of these limitations are that:
• Free Cash Flow does not reflect our future contractual commitments;
• Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;
• Adjusted EBITDA excludes stock-based compensation expense and payroll and other tax expense related to stock-based compensation, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; and
• Adjusted EBITDA excludes income tax benefit (expense).
The following table presents a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most comparable GAAP financial measure, for each of the periods presented:
Year Ended December 31,
2024 2023 2022
(in thousands)
Free Cash Flow reconciliation:
Net cash provided by (used in) operating activities $ 413,480 $ 246,521 $ 184,614
Less:
Purchases of property and equipment (194,826) (211,727) (129,306)
Free Cash Flow $ 218,654 $ 34,794 $ 55,308
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The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:
Year Ended December 31,
2024 2023 2022
(in thousands)
Adjusted EBITDA reconciliation:
Net loss $ (697,856) $ (1,322,485) $ (1,429,653)
Add (deduct):
Interest income (153,466) (168,394) (58,597)
Interest expense 21,552 22,024 21,459
Other (income) expense, net 16,846 42,414 42,529
Income tax (benefit) expense 25,630 28,062 28,956
Depreciation and amortization 154,459 159,999 186,434
Stock-based compensation expense 1,031,621 1,319,783 1,353,283
Payroll and other tax expense related to stock-based compensation 37,768 39,324 44,213
Restructuring charges (1)
72,051 40,850 188,949
Adjusted EBITDA $ 508,605 $ 161,577 $ 377,573
(1) Restructuring charges in 2024 are primarily related to cash severance, stock-based compensation expense, and other charges associated with the 2024 restructuring. Restructuring charges in 2023 relating to the wind down of our AR Enterprise business were composed primarily of cash severance, stock-based compensation expense, and charges related to the revision of the useful lives and disposal of certain acquired intangible assets. Additionally, we recognized an income tax benefit of $5.7 million relating to the wind down, which is included in the income tax (benefit) expense line item above. Restructuring charges in 2022 relating to the strategic reprioritization plan were composed primarily of severance and related charges of $97.1 million, stock-based compensation expense, lease exit and related charges, impairment charges, contract termination charges, and intangible asset amortization. These charges are not reflective of underlying trends in our business. See Note 18 to our consolidated financial statements included in the “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information.
Critical Accounting Estimates
We prepare our financial statements in accordance with GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
We determine revenue recognition by first identifying the contract or contracts with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when, or as, we satisfy a performance obligation.
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We determine collectability by performing ongoing credit evaluations and monitoring customer accounts receivable balances. Sales tax, including value added tax, is excluded from reported revenue.
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We generate substantially all of our revenues by offering various advertising products on Snapchat, which include Snap Ads and AR Ads, referred to as advertising revenue. AR Ads include Sponsored Lenses, which allow users to interact with an advertiser’s brand by enabling branded augmented reality experiences.
The substantial majority of advertising revenue is generated from the display of advertisements on Snapchat through contractual agreements that are either based on the number of advertising impressions delivered or on a fixed fee basis over a period of time. Revenue related to agreements based on the number of impressions delivered is recognized when the advertisement is served. Revenue related to fixed fee arrangements is recognized ratably over the service period, typically less than 30 days in duration, and such arrangements do not contain minimum impression guarantees.
In arrangements where another party is involved in providing specified services to a customer, we evaluate whether we are the principal or agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis. For the periods presented, revenue for arrangements where we are the agent was not material.
Valuation of Assets
The valuation and impairment assessment of certain assets requires significant judgment and assumptions such as the estimation of future cash flows, discount rates, useful lives, and market data of comparable assets, among others.
We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our strategic investments in privately held equity securities without readily determinable fair values. We adjust the carrying value of these equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment. All strategic investments are reviewed periodically for impairment. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others.
We also evaluate the recoverability of our property and equipment, operating lease right-of-use assets, and intangible assets, excluding goodwill, when events or changes indicate the carrying amount of an asset may not be recoverable. Events and changes in circumstances considered in determining whether the carrying value of long-lived assets may not be recoverable include significant changes in performance relative to expected operating results, significant changes in asset use, and significant negative industry or economic trends and changes in our business strategy. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows to be generated. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Loss Contingencies
We are involved in claims, lawsuits, tax matters, government investigations, and proceedings arising in the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. When there appears to be a range of possible costs with equal likelihood, a liability is recorded based on the low-end of such range. However, the likelihood of a loss is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available, the potential effect of future events, and decisions by third parties impacting the ultimate resolution of the contingency. It is also not uncommon for such matters to be resolved over multiple reporting periods. During this time, relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of potential loss. We also disclose material contingencies when we believe that a loss is reasonably possible.
Significant judgment is required to determine both probability and the estimated amounts of loss contingencies. Such claims, suits, and proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change, it could have a material impact on our results of operations, financial position, and cash flows.
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Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our uncertain tax positions.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements included in “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.