What changed in this filing

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Item 1A. Risk Factors

2021-10-22 compared with 2021-07-23 · 91 added, 76 removed, 942 unchanged (15% of the section changed)

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Driving their success requires continual investment in our advertising products and may be hindered by competitive challenges and various legal, regulatory, and operating system changes that make it more difficult for us to achieve and demonstrate a meaningful return for our advertisers.

For example, recent changes to privacy laws and mobile operating systems have made it more difficult for us to collect and disclose user data or metrics that an advertiser needs to prove success, or that we need to demonstrate such success.

For example, on-going changes to privacy laws and mobile operating systems have made it more difficult for us to measure the effectiveness of advertisements on our services, and alternative methods will take time to develop and become more widely adopted by our advertisers, and may not be as effective as prior methods.

We believe that this impact on our targeting, measurement, and optimization capabilities has negatively affected our operating results.

In addition, our advertising business is seasonal and volatile, which could result in fluctuations in our quarterly revenues and operating results, including the expectations of our business prospects.

Our business and operations have been , and could in the future be, adversely affected by events beyond our control, such as health epidemics, including the COVID-19 pandemic, impacting the markets and communities in which we and our partners, advertisers, and users operate.

Our business and operations have been, and could in the future be, adversely affected by events beyond our control, such as health epidemics, including the COVID-19 pandemic and macroeconomic factors like labor shortages and supply chain disruptions , impacting the markets and communities in which we and our partners, advertisers, and users operate.

Our Community and Competition

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We also must actively protect our intellectual property.

From time to time, we are subject to various legal claims, investigations, and proceedings, including class actions and matters involving intellectual property, that may be costly or distract management.

From time to time, we are subject to various legal proceedings, claims, inquiries, and investigations, including class actions and matters involving intellectual property, that may be costly or distract management.

We also rely on a variety of statutory and common-law frameworks for the content we provide our users, including the Digital Millennium Copyright Act, the Communications Decency Act, and the fair-use doctrine, each of which has been subject to adverse judicial, political, and regulatory scrutiny in recent times.

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If we fail to retain current users or add new users, or if our users engage less with Snapchat, our business would be seriously harmed.

We had 293 million DAUs on average in the quarter ended June 30, 2021.

We had 306 million DAUs on average in the quarter ended September 30, 2021.

We view DAUs as a critical measure of our user engagement, and adding, maintaining, and engaging DAUs have been and will continue to be necessary.

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While we may experience periods when our DAUs increase due to products and services with short-term popularity, or due to a lack of other events that compete for our users’ attention, we may not always be able to attract new users, retain existing users, or maintain or increase the frequency and duration of their engagement if current or potential new users do not perceive our products to be fun, engaging, and useful.

In addition, because our products typically require high bandwidth data capabilities, the majority of our users live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas.

We therefore do not expect to experience rapid user growth or engagement in countries with low smartphone penetration even if such countries have well-established and high bandwidth capacity cellular networks.

We may also not experience rapid user growth or engagement in countries where, even though smartphone penetration is high, consumers rely heavily on Wi-Fi due to the lack of sufficient cellular based data networks and therefore may not access our products regularly throughout the day.

In addition, because our products typically require high bandwidth data capabilities in order for users to benefit from all of the features and capabilities of our application, many of our users live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas.

We therefore do not expect to experience rapid user growth or engagement in countries with either low smartphone penetration or a lack of well-established and high bandwidth capacity cellular networks.

If our DAU growth rate slows or becomes stagnant, or we have a decline in DAUs, our financial performance will increasingly depend on our ability to elevate user activity or increase the monetization of our users.

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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.

This calculation may mask any individual days or months within the quarter that are significantly higher or lower than the average.

This calculation may mask any individual days or months within the quarter that are significantly higher or lower than the quarterly average.

There are many factors that could negatively affect user retention, growth, and engagement, including if:

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Additionally, mobile devices and mobile-device cameras are manufactured by a wide array of companies.

Those companies have no obligation to test the interoperability of new mobile devices or mobile-device cameras with Snapchat, and may produce new products that are incompatible with or not optimal for Snapchat.

Those companies have no obligation to test the interoperability of new mobile devices, mobile-device cameras, or related devices with Snapchat, and may produce new products that are incompatible with or not optimal for Snapchat.

We have no control over these operating systems, application stores, or hardware, and any changes to these systems or hardware that degrade our products’ functionality, or give preferential treatment to competitive products, or actions by government authorities that impact our access to these systems or hardware, could seriously harm Snapchat usage on mobile devices.

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The FCC order repealing the open internet rules went into effect in June 2018.

The core aspects of that order have been upheld by the United States Court of Appeals for the District of Columbia Circuit, but a number of states have adopted or are considering legislation or executive actions to impose state-level open internet rules, and those actions have been or can be expected to be challenged in court.

The core aspects of that order have been upheld by the United States Court of Appeals for the District of Columbia Circuit, but a number of states have adopted or are considering legislation or

executive actions to impose state-level open internet rules, and those actions have been or can be expected to be challenged in court.

Additionally, U.S.

President Biden has recently issued an executive order encouraging the FCC to restore the open internet rules.

We cannot predict whether the FCC order or state initiatives regulating providers will ultimately be upheld, modified, overturned, or vacated by further legal action, federal legislation, or the FCC, or the degree to which such outcomes would adversely affect our business, if at all.

Similarly, the European Union requires equal access to internet content, but as part of certain initiatives and reviews (including recent modifications to the European Electronic Communications Code and proposals to expand the scope and nature of the EU Network and Information Security Directive ) , the European Union may impose additional obligations, including network security requirements, reporting and transparency obligations , disability access, or 911-like obligations on certain “over-the-top” services or those that qualify as “electronic communication services .

” I f we are considered to be in the scope of such service definition , our costs of doing business could increase and our business could be seriously harmed .

Similarly, the European Union requires equal access to internet content, but as part of certain initiatives and reviews (including recent modifications to the European Electronic Communications Code and proposals to expand the scope and nature of the EU Network and Information Security Directive), the European Union may impose additional obligations, including network security requirements, reporting and transparency obligations, disability access, or 911-like obligations on certain “over-the-top” services or those that qualify as “electronic communication services.” If we are considered to be in the scope of such service definition, our costs of doing business could increase and our business could be seriously harmed.

The European Union’s highest court has also issued rulings that may limit our ability to engage in certain practices, such as “zero rating.” If the FCC’s repeal of the open internet rules is maintained, state initiatives are modified, overturned, or vacated, or the European Union modifies these open internet rules or limits commercial practices, mobile and internet providers may be able to limit our users’ ability to access Snapchat or make Snapchat a less attractive alternative to our competitors’ applications.

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Google and Amazon each has broad discretion to change and interpret its terms of service and other policies with respect to us, and those actions may be unfavorable to us.

They may also alter how we are able to process data on their cloud platforms.

They may also alter how we are able to process data on their cloud

If Google or Amazon makes changes or interpretations that are unfavorable to us, our business could be seriously harmed.

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Many of our customers only recently started working with us and spend a relatively small portion of their overall advertising budget with us, but some customers have devoted meaningful budgets that contribute to our total revenue.

Still, no individual customer accounts for more than 10% of our annual revenue.

Still, we are not dependent on any individual customer.

In addition, advertisers may view some of our products as experimental and unproven, or prefer certain of our products over others.

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Changes in the European Union’s Electronic Communications Code, which became effective in December 2020, may result in the expanded applicability of the European Union’s ePrivacy Directive over parts of our services, requiring us to make changes to how we process and store certain types of communications data of users in the European Union, which could have a material impact on the availability of data we rely on to improve and personalize our products and features.

Furthermore, changes to iOS or Android operating systems’ practices and policies, such as Apple’s recent iOS update that imposes heightened restrictions on our access and use of user data and similar changes expected to be implemented by Google with respect to its Android operating system, may reduce the quantity or quality of the data and metrics that can be collected or used by us and our partners, or adversely affect our ability to effectively target advertisements to users or demonstrate the value of our advertisements to advertisers, any of which could reduce the demand and pricing for our advertising products and seriously harm our business.

Furthermore, in April 2021 Apple issued an iOS update that imposes heightened restrictions on our access and use of user data.

Google has announced that it will implement similar changes with respect to its Android operating system and major web browsers, like Safari and Chrome, may make similar changes as well.

These changes have adversely affected our targeting, measurement, and optimization capabilities, and in turn affected 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 demand and pricing for our advertising products and could seriously harm our business.

The impact of these changes on the overall mobile advertising ecosystem, our competitors, our business, and the developers, partners, and advertisers within our community is uncertain, and depending on how we, our competitors, and the overall mobile advertising ecosystem adjusts, and how our partners, advertisers, and users respond, our business could be seriously harmed.

In addition, if we are unable to mitigate these and future developments, and alternative methods do not become widely adopted by our advertisers, then our targeting, measurement, and optimization capabilities will be materially and adversely affected, which would in turn continue to negatively impact our advertising revenue.

Any adverse effects could be particularly material to us because we are still early in building our advertising business.

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changes in the way advertising is priced or its effectiveness is measured;

our inability to measure the effectiveness of our advertising or target the appropriate audience for advertisements;

our inability, or perceived inability, to measure the effectiveness of our advertising or target the appropriate audience for advertisements;

our inability to collect and disclose data or access a user’s Identifier for Advertising or similar deterministic identifier that new and existing advertisers may find useful;

difficulty and frustration from advertisers who may need to reformat or change their advertisements to comply with our guidelines;

the macroeconomic climate and the status of the advertising industry in general.

the macroeconomic climate and the status of the advertising industry in general, including labor shortages and supply chain disruptions.

These and other factors could reduce demand for our advertising products, which may lower the prices we receive, or cause advertisers to stop advertising with us altogether.

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Our two co-founders have control over all stockholder decisions because they control a substantial majority of our voting stock.

Our two co-founders, Evan Spiegel and Robert Murphy, own or control voting shares of our capital stock that represent over 99% of the voting power of our outstanding capital stock as of June 30, 2021, and Mr.

Our two co-founders, Evan Spiegel and Robert Murphy, control over 99% of the voting power of our outstanding capital stock as of September 30, 2021, and Mr.

Spiegel alone can exercise voting control over a majority of our voting power.

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As some of our advertisers experience downturns or uncertainty in their own business operations and revenue because of the economic effects resulting from the spread of COVID-19, they halted or decreased or may halt, decrease, or continue to decrease, temporarily or permanently, their advertising spending or may focus their advertising spending more on other platforms, all of which may result in decreased advertising revenue.

Furthermore, a portion of our advertising revenue is related to in-person events or activities, such as sporting events, music festivals, the Olympics, and in-person learning, which were postponed or cancelled during the COVID-19 pandemic and may continue to be adversely affected.

Labor shortages and supply chain disruptions continue to cause logistical challenges, increased input costs, and inventory constraints for our advertisers, which in turn may also halt or decrease advertising spending.

Furthermore, a portion of our advertising revenue is related to in-person events or activities, such as sporting events, music festivals, and in-person learning, which were postponed, cancelled, or limited during the COVID-19 pandemic and may continue to be adversely affected.

In addition, the unpredictability of the COVID-19 pandemic may make it difficult to forecast our advertising revenue, and although we may benefit in the shorter term from changes in the current advertising landscape, any increases may not be indicative of longer-term trends.

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We implemented and continue a flexible work-from-home policy for substantially all of our employees, and we may take further actions that alter our operations as may be required by federal, state, or local authorities, or which we believe are in our best interests.

While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family who become sick), and

employees may become sick themselves and be unable to work.

While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional

personal needs to attend to (such as looking after children as a result of school closures or family who become sick), and employees may become sick themselves and be unable to work.

Decreased effectiveness of our team could adversely affect our results due to our inability to meet in person with potential advertisers, longer time periods to review and approve ads, longer time to respond to application performance issues or spam, extended timelines for product reviews and a corresponding reduction in innovation, or other decreases in productivity that could seriously harm our business.

Furthermore, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a result of the spread of COVID-19, which may impact our user engagement and rate of innovation, either of which could seriously harm our business.

As a result of the COVID-19 pandemic, our partners who provide content or services to us may experience delays or interruptions in their ability to create content or provide services, if they are able to do so at all.

As a result of the COVID-19 pandemic, our partners and community who provide content or services to us may experience delays or interruptions in their ability to create content or provide services, if they are able to do so at all.

A decrease in the amount or quality of content available on Snapchat, or an interruption in the services provided to us, could lead to a decline in user engagement, which could seriously harm our business.

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The global impact of COVID-19 has and continues to rapidly evolve, and we will continue to monitor the situation closely.

While there have recently been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, including against variants that emerge, and we do not yet know how businesses, advertisers, or our partners will operate in a post COVID-19 environment.

While there have been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine adoption or roll-out globally or the efficacy of such vaccines, including against variants that emerge, and we do not yet know how businesses, advertisers, or our partners will operate in a post COVID-19 environment.

Our users may change how they use our products and services in an environment where the perceived risk of COVID-19 and regulations surrounding it have changed.

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Product innovation is inherently volatile, and if new or enhanced products fail to engage our users, advertisers, or partners, or if we fail to give our users meaningful reasons to return to our application, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, any of which may seriously harm our business in the short term, long term, or both.

Additionally, we frequently launch new products and the products that we launch may have technical issues that diminish the performance of our application.

Additionally, we frequently launch new products and the products that we launch may have technical issues that diminish the

performance of our application.

These performance issues or issues that we encounter in the future could impact our user engagement.

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As we introduce new products, as our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition.

In addition, ongoing changes to privacy laws and mobile operating systems have made it more difficult for us to target and measure advertisements effectively.

As a result, our competitors may, and in some cases will, acquire and engage users or generate advertising or other revenue at the expense of our own efforts, which would negatively affect our business.

Many of our current and potential competitors have significantly greater resources and broader global recognition and occupy stronger competitive positions in certain market segments than we do.

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We began commercial operations in 2011 and we have historically experienced net losses and negative cash flows from operations.

As of June 30, 2021, we had an accumulated deficit of $8.2 billion and for the three months ended June 30, 2021, we experienced a net loss of $151.7 million.

As of September 30, 2021, we had an accumulated deficit of $8.3 billion and for the three months ended September 30, 2021, we experienced a net loss of $72.0 million.

We expect our operating expenses to increase in the future as we expand our operations.

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The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could seriously harm our business.

We depend on the continued services and performance of our key personnel, including Evan Spiegel and Robert Murphy.

We depend on the continued services and performance of our key personnel, including Mr.

Spiegel and Mr.

Although we have entered into employment agreements with Mr.

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seriously harmed.

In addition, the C CPA went into effect in January 2020 and places additional requirements on the handling of personal data.

In addition, the CCPA went into effect in January 2020 and places additional requirements on the handling of personal data.

The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the likelihood and cost of data breach litigation.

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Other state, federal, and foreign legislative and regulatory bodies have enacted or may enact similar legislation regarding the handling of personal data, or conduct additional investigations into specific companies or the industry as a whole that could alter the existing regulatory environment in a manner that would be adverse to us.

C hanges in the E uropean Union’s Electronic Communications Cod e, which became effective in December 2020, may result in the expanded applicability of the European Union’s ePrivacy Directiv e over parts of our services, requiring us to make changes to how we process and store certain types of communications data of users in the European Union, which could have a material impact on the availability of data we rely on to improve and personalize our products and features.

Furthermore, in December 2018, the Australian government passed the Assistance and Access Bill 2018 that provides Australian law enforcement authorities with mechanisms to make requests for electronic communication, even if the data is end-to-end encrypted like in Snapchat, which may create new obligations for companies providing communication services and make their data less secure .

The UK’s Age Appropriate Design Code, or AADC, which focuses on online safety and protection of children’s privacy online became effective in September 2021.

Noncompliance with the AADC may result in audits by the U.K.’s Information Commissioner Office, or ICO, the regulatory body set up to uphold information rights, and other EU regulators as noncompliance with the AADC may indicate noncompliance with the GDPR.

The ICO continues to engage with industry leaders to interpret and maintain compliance with the AADC.

Furthermore, in December 2018, the Australian government passed the Assistance and Access Bill 2018 that provides Australian law enforcement authorities with mechanisms to make requests for electronic communication, even if the data is end-to-end encrypted like some of the data in Snapchat, which may create new obligations for companies providing communication services and make their data less secure.

Our financial condition and results of operations will fluctuate from quarter to quarter, which makes them difficult to predict.

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our ability to maintain operating margins, cash used in operating activities, and Free Cash Flow;

our ability to accurately forecast consumer demand for our hardware products and adequately manage inventory;

our ability to accurately forecast consumer demand for our physical products and adequately manage inventory;

system failures or breaches of security or privacy, and the costs associated with such breaches and remediations;

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changes in accounting standards, policies, guidance, interpretations, or principles;

changes in domestic and global business or macroeconomic conditions, including as a result of the current COVID-19 pandemic.

changes in domestic and global business or macroeconomic conditions, including as a result of the current COVID-19 pandemic and resulting labor shortages and supply chain disruptions.

If we are unable to continue to successfully grow our user base and further monetize our products, our business will suffer.

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advertisers reduce their advertising on Snapchat;

we fail to maintain good relationships with advertisers or attract new advertisers;

we fail to maintain good relationships with advertisers or attract new advertisers, or demonstrate to advertisers the effectiveness of advertising on Snapchat;

the content on Snapchat does not maintain or gain popularity.

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In addition, our business is subject to interruptions, delays, and failures resulting from earthquakes, other natural disasters, terrorism, pandemics, and other catastrophic events.

Global climate change could also result in natural disasters occurring more frequently or with more intense effects, which could cause business interruptions.

Substantially all of our network infrastructure is provided by third parties, including Google Cloud and AWS.

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In connection with this implementation, we modified the design and documentation of our internal control processes and procedures relating to the new system.

As part of this implementation, we may experience difficulties in managing our existing systems and processes, which could disrupt our operations, the management of our finances, and the reporting of our financial results.

Our failure to complete such system implementation on a timely basis, or its failure to

operate in the intended manner, may result in our inability to manage the growth of our business and to accurately forecast and report our results , each of which could seriously harm our business .

As part of this implementation, we may experience difficulties

in managing our existing systems and processes, which could disrupt our operations, the management of our finances, and the reporting of our financial results.

Our failure to complete such system implementation on a timely basis, or its failure to operate in the intended manner, may result in our inability to manage the growth of our business and to accurately forecast and report our results, each of which could seriously harm our business.

Our business emphasizes rapid innovation and prioritizes long-term user engagement over short-term financial condition or results of operations.

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Using our products, some partners and advertisers not only can interact directly with our users but can also direct our users to content with third-party websites and products and downloads of third-party applications.

In addition, our users may generate content by using Snapchat features, but then share, use, or post it on a different platform.

The more our users engage with third-party websites and applications, the less engagement we may get from them, which would adversely affect the revenue we could earn from them.

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We have been subject to, and expect to

continue to be subject to, claims and legal proceedings from holders of patents, trademarks, copyrights, and other intellectual property rights alleging that some of our products or content infringe their rights.

For example, i n January 2020, You Map, Inc.

continue to be subject to, claims and legal proceedings from holders of patents, trademarks, copyrights, trade secrets, and other intellectual property rights alleging that some of our products or content infringe their rights.

For example, in January 2020, You Map, Inc.

filed a lawsuit in the U.S.

District Court for the District of Delaware against us, our subsidiary Zenly , and certain of our respective employees alleging that we misappropriated various trade secrets regarding map technology used in Snapchat’s and Zenly’s map products and that Snapchat and Zenly’s app lication infringe a You Map patent .

District Court for the District of Delaware against us, our subsidiary Zenly , and certain of our respective employees alleging that we misappropriated various trade secrets regarding map technology used in Snapchat’s and Zenly’s map products and that the Snapchat and Zenly applications infringe a You Map patent.

While we believe we have meritorious defenses to these claims, an unfavorable outcome in these and other similar lawsuits could seriously harm our business.

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For example, in November 2020, a putative class filed an action against us in Illinois, alleging that we violated Illinois’ Biometric Information Privacy Act with respect to many Illinois users of Snapchat and that we are liable to those users for statutory damages.

This lawsuit was recently dismissed, and we believe we have meritorious defenses to this and other putative class actions.

This lawsuit was dismissed, and we believe we have meritorious defenses to this and other putative class actions.

However, an unfavorable outcome in these lawsuits could seriously harm our business.

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We may also receive unfavorable preliminary, interim, or final rulings in the course of litigation.

For example, beginning on May 16, 2017, we, certain of our officers and directors, and the underwriters of our IPO were named as defendants in securities class actions in federal and state courts purportedly brought on behalf of purchasers of our Class A common stock.

In January 2020, we entered into a preliminary agreement to settle the federal and state securities class actions, and the settlement amount was paid into escrow in December 2020.

In March 2021, the federal court granted final approval of the settlement and entered judgment while the state court granted final approval of the settlement in March 2021 and entered judgment in April 2021.

The settlement amount will be released from escrow as determined by the plaintiffs’ lawyers and the settlement administrator.

For example, in May 2017, we, certain of our officers and directors, and the underwriters of our IPO were named as defendants in securities class actions in federal and state courts purportedly brought on behalf of purchasers of our Class A common stock, which were settled and approved by such federal and state courts in early 2021.

We may face lawsuits, incur liability, or need to seek licenses based on information posted to our products.

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This risk is enhanced in certain jurisdictions outside the United States where our protection from liability for third-party actions may be unclear or evolving and where we may be less protected under local laws than we are in the United States.

For example, in April 2019, the European Union passed a directive expanding online platform liability for copyright infringement and regulating certain uses of news content online, which member states are required to implement by June 2021.

In addition, legislation in Germany may impose significant fines for failure to comply with certain content removal and disclosure obligations.

Numerous other countries in Europe, Asia-Pacific, and Latin America are considering or have implemented similar legislation imposing penalties for failure to remove certain types of content or follow certain processes.

Numerous other countries in Europe, the Middle East, Asia-Pacific, and Latin America are considering or have implemented similar legislation imposing penalties for failure to remove certain types of content or follow certain processes.

In the United States, there have been various Congressional and Executive branch efforts to remove or restrict the scope of the protections available to online platforms under Section 230 of the CDA.

For example, the CDA was amended in 2018, and the U.S.

Congress and the E xecutive branch have proposed further changes or amendments each year since 2019, including among other things proposals that would narrow CDA immunity, expand government enforcement power relating to content moderation concerns, or repeal the CDA altogether.

Congress and the Executive branch have proposed further changes or amendments each

year since 2019, including among other things proposals that would narrow CDA immunity, expand government enforcement power relating to content moderation concerns, or repeal the CDA altogether.

Such changes could decrease or change our protections from liability for third-party content in the United States.

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While we continue to monitor these developments, the full effect of Brexit on our operations is uncertain and our business could be harmed by trade disputes or political differences between the United Kingdom and the European Union in the future.

We plan to continue to make acquisitions and investments in other companies, which could require significant management attention, disrupt our business, dilute our stockholders, and seriously harm our business.

As part of our business strategy, we have made and intend to make acquisitions to add specialized employees and complementary companies, products, and technologies, as well as investments in other companies in furtherance of our strategic objectives.

We plan to continue to make acquisitions and strategic investments in other companies, which could require significant management attention, disrupt our business, dilute our stockholders, and seriously harm our business.

As part of our business strategy, we have made and intend to make acquisitions to add specialized employees and complementary companies, products, and technologies, as well as investments in public and private companies in furtherance of our strategic objectives.

Our ability to acquire and successfully integrate larger or more complex companies, products, and technologies is unproven.

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Therefore, it is possible that our valuation of an acquisition may change and result in unanticipated write-offs or charges, impairment of our goodwill, or a material change to the fair value of the assets and liabilities associated with a particular acquisition, any of which could seriously harm our business.

The strategic investments we make in public and private companies around the world range from early-stage companies still defining their strategic direction to mature companies with established revenue streams and business models.

Many of the instruments in which we invest are non-marketable and illiquid at the time of our initial investment, and we are not always able to achieve a return in a timely fashion, if at all.

Our ability to realize a return on our investment in a private company, if any, is typically dependent on the company participating in a liquidity event, such as a public offering or acquisition.

To the extent any of the companies in which we invest are not successful, which can include failures to achieve business objectives as well as bankruptcy, we could recognize an impairment or lose all or part of our investment.

Our acquisition and investment strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions.

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Goodwill is required to be tested for impairment at least annually.

As of June 30, 2021, we had recorded a total of $1.7 billion of goodwill and intangible assets, net related to our acquisitions.

As of September 30, 2021, we had recorded a total of $1.7 billion of goodwill and intangible assets, net related to our acquisitions.

An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets.

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We do not have manufacturing capabilities and depend on contract manufacturers.

If we encounter problems with our contract manufacturers or if the manufacturing process stops or is delayed for any reason, we may not deliver our hardware products, such as Spectacles, to our customers on time, which may seriously harm our business.

We have limited manufacturing experience for our only physical product, Spectacles, and we do not have any internal manufacturing capabilities.

Instead, we rely on contract manufacturers to build Spectacles.

If we encounter problems with our contract manufacturers or if the manufacturing process stops or is delayed for any reason, we may not deliver our physical products, such as Spectacles, to our customers on time, which may seriously harm our business.

We have limited manufacturing experience for our physical products, such as Spectacles, and we do not have any internal manufacturing capabilities.

Instead, we rely on contract manufacturers to build our physical products.

Our contract manufacturers are vulnerable to capacity constraints and reduced component availability, and our control over delivery schedules, manufacturing yields, and costs, particularly when components are in short supply, or if we introduce a new product or feature, is limited.

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This may lead to unsatisfied customers and users and increase costs to us, which could seriously harm our business.

Components used in our products may fail as a result of a manufacturing, design, or other defect over which we have no control, and render our devices inoperable.

We rely on third-party component suppliers to provide some of the functionalities needed to operate and use our products, such as Spectacles.

Any errors or defects in that third-party technology could result in errors in our products that could seriously harm our business.

Components used in our physical products may fail as a result of a manufacturing, design, or other defect over which we have no control, and render our devices inoperable.

We rely on third-party component suppliers to provide some of the functionalities needed to operate and use our physical products, such as Spectacles.

Any errors or defects in that third-party technology could result in errors in our physical products that could seriously harm our business.

If these components have a manufacturing, design, or other defect, they can cause our products to fail and render them permanently inoperable.

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We could seriously harm our business and the ability to sell our products if we experience any product problems requiring reporting to governmental authorities, if we fail to comply with applicable state or foreign agency regulations, or if we are subject to enforcement actions such as fines, civil penalties, injunctions, product recalls, or failure to obtain regulatory clearances or approvals.

We have faced inventory risk with respect to our Spectacles products.

We have been and may in the future be exposed to inventory risks related to Spectacles as a result of rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products, and other factors.

We have faced inventory risk with respect to our physical products, such as Spectacles.

We have been and may in the future be exposed to inventory risks related to our physical products, such as Spectacles, as a result of rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products, and other factors.

We try to accurately predict these trends and avoid overstocking or understocking inventory.

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Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt, and would seriously harm our business.

In addition, holders of the Convertible Notes will have the right to require us to repurchase all or a portion of the Convertible Notes on the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

In addition, holders of the Convertible Notes have the right to require us to repurchase all or a portion of the Convertible Notes on the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

Further, if a make-whole fundamental change as defined in each of the indentures governing the Convertible Notes, or the Indentures, occurs prior to the maturity date of the Convertible Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change.

68 unchanged sentences

As a result, all matters submitted to stockholders will be decided by the vote of holders of Class B common stock and Class C common stock.

As of June 30, 2021, Mr.

As of September 30, 2021, Mr.

Spiegel and Mr.

49 unchanged sentences

Shares of Class A common stock were sold in our IPO in March 2017 at a price of $17.00 per share.

Since then, the trading price of our Class A common stock has ranged from $4.82 to $73.59 through June 30, 2021.

Since then, the trading price of our Class A common stock has ranged from $4.82 to $83.34 through September 30, 2021.

Declines or volatility in our trading price could make it more difficult to attract and retain talent, adversely impact employee retention and morale, and may require us to issue more equity to incentivize employees which could dilute stockholders.

18 unchanged sentences

In the past, stockholders have filed securities class-action litigation following periods of market volatility.

Beginning on May 16, 2017, we, certain of our officers and directors, and the underwriters for our IPO were named as defendants in securities class actions purportedly brought on behalf of purchasers of our Class A common stock.

In January 2020, we entered into a preliminary agreement to settle the federal and state securities class actions, and the settlement amount was paid into escrow in December 2020.

The settlement amount will be released from escrow as determined by the plaintiffs’ lawyers and the settlement administrator.

Any litigation could subject us to substantial costs, divert resources and the attention of management from our business, and seriously harm our business.

2 unchanged sentences

On conversion of the Convertible Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock.

If we elect to settle our conversion

obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable on such conversion could adversely affect prevailing market prices of our Class A common stock.

In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our Class A common stock, any of which could depress the market price of our Class A common stock.

If we elect to settle our conversion obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable on such conversion could adversely affect prevailing market prices of our Class A common stock.

conversion of the Convertible Notes into shares of our Class A common stock, any of which could depress the market price of our Class A common stock.

We may also engage in exchanges, or we may repurchase or induce conversions, of the Convertible Notes in the future.

Holders of the Convertible Notes that participate in any of these exchanges, repurchases, or induced conversions may enter into or unwind various derivatives with respect to our Class A common stock or sell shares of our Class A common stock in the open market to hedge their exposure in connection with these transactions.

These activities could decrease (or reduce the size of any increase in) the market price of our Class A common stock or the Convertible Notes.

These activities could decrease (or reduce the size of any increase in) the market price of our Class A common stock or the Convertible Notes, or dilute the ownership interests of our stockholders.

In addition, the market price of our Class A common stock is likely to be affected by short sales of our Class A common stock or the entry into or unwind of economically equivalent derivative transactions with respect to our Class A common stock by investors that do not participate in the exchange transactions and by the hedging activity of the counterparties to our Capped Call Transactions or their respective affiliates.

41 unchanged sentences

If our existing stockholders, including employees and service providers who obtain equity, sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, the trading price of our Class A common stock could decline.

As of June 30, 2021, we had outstanding a total of 1.3 billion shares of Class A common stock, 23.6 million shares of Class B common stock, and 231.6 million shares of Class C common stock.

In addition, as of June 30, 2021, 103.7 million shares of Class A common stock and 0.8 million shares of Class B common stock were subject to outstanding stock options and RSUs.

All of our outstanding shares are eligible for sale in the public market, except approximately 377.9 million shares (including options exercisable and RSAs subject to forfeiture as of June 30, 2021) held by directors, executive

officers, and other affiliates that are subject to volume limitations under Rule 144 of the Securities Act.

As of September 30, 2021, we had outstanding a total of 1.3 billion shares of Class A common stock, 23.6 million shares of Class B common stock, and 231.6 million shares of Class C common stock.

In addition, as of September 30, 2021, 92.0 million shares of Class A common stock and 0.7 million shares of Class B common stock were subject to outstanding stock options and RSUs.

All of our outstanding shares are eligible for sale in the public market, except approximately 375.8 million shares (including options exercisable and RSAs subject to forfeiture as of September 30, 2021) held by directors, executive officers, and other affiliates that are subject to volume limitations under Rule 144 of the Securities Act.

Our employees, other service providers, and directors are subject to our quarterly trading window closures.

21 unchanged sentences

By complying with public disclosure requirements, our business and financial condition are more visible, which we believe may result in increased threatened or actual litigation, including by competitors and other third parties.

For example, beginning on May 16, 2017, we, certain of our officers and directors, and the underwriters of our IPO were named as defendants in securities class actions purportedly brought on behalf of purchasers of our Class A common stock.

2020, we entered into a preliminary agreement to settle the federal and state securities class actions , and t he settlement amount was paid into escrow in December 2020 .

The settlement amount will be released from escrow as determined by the plaintiffs ’ lawyers and the settlement administrator .

Shareholder litigation can subject us to substantial costs and divert resources and the attention of management from our business and, if the claims are successful, our business could be seriously harmed.

13 unchanged sentences

If a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors