![]() ![]() By rightfully including SBC, operating expenses balloon from $586 million to $914 million or from 55% of revenue to 86%. Including SBC, the cost of revenue moves up slightly from $413 million to $421 million or from 39% of revenue to 39.6% per the 1Q22 10-Q. The overwhelming majority of their SBC hits operating expense lines as opposed to the cost of revenue. Management says that without SBC in 1Q22, the cost of revenue is 39% of revenue and the operating expenses are 55% for a total of 94% of revenue. Snap likes to exclude SBC when they look at their cost of revenue and operating expenses as a percentage of revenue in their 1Q22 earnings slides but this is misleading: It is hard to put a valuation range on Snap without knowing management’s intentions with SBC. Management can also choose to not offset dilution but then the share count may grow rapidly. Management can keep the share count stable by buying back shares to offset SBC dilution but this means there is less cash to pull out of the company. Looking at SBC as a percentage of revenue, we see that Snap has a high level of SBC relative to Pinterest ( PINS ), Twitter ( TWTR ) and Meta ( META ):Ī company is worth the amount of cash that can be pulled out of it on a per-share basis from now until judgment day. This net income/loss number is the starting point on the cash flow statement but SBC is added back in such that it washes out and is not a part of the OCF figure. SBC is deducted from revenue through various income statement lines such that the net income/loss number is far below top line revenue. One of the main differences between these positive and negative numbers is the $1,092 million stock-based compensation (“SBC”). This way we see the $293 million operating cash flow (“OCF”) figure before we see the negative $488 million net income figure. Snap likes to lead with their cash flow statement in the 2021 annual report. was founded in 2010 and is headquartered in Venice, California.My thesis is that Snap’s ( NYSE: SNAP) high level of stock-based compensation makes it difficult to come up with a tight valuation range. The company was formerly known as Snapchat, Inc. In addition, the company offers Snap Map, which enables individuals to pinch on the camera screen for bringing a live map of their location, as well as showing nearby friends, popular stories, and a heatmap of recent Snaps posted to their story Memories that allows users to choose to save the Snaps they create in a searchable personal collection, and users to create Snaps and stories from their saved Snaps and camera roll and Spectacles, a hardware product that connects with Snapchat and capture video from a human perspective. It also provides Camera, a tool to personalize and add context to Snaps Friends Page that allows to creating and watching stories, chatting with groups, making voice and video calls, and communicating through a range of contextual stickers and Bitmojis and Discover that helps to surface the most interesting stories from publishers, creators, and the community, based on a user's subscriptions and interests. The company offers Snapchat, a camera application that helps people to communicate through short videos and images. operates as a camera company in the United States and internationally. Morgan Stanley: Equal-Weight → Overweight ![]() RBC Capital Mkts: Outperform → Sector Perform JMP Securities: Mkt Outperform → Mkt Perform
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