Open main menu
Home
Random
Donate
Recent changes
Special pages
Community portal
Preferences
About Stockhub
Disclaimers
Search
User menu
Talk
Contributions
Create account
Log in
Editing
Snap
(section)
Warning:
You are not logged in. Your IP address will be publicly visible if you make any edits. If you
log in
or
create an account
, your edits will be attributed to your username, along with other benefits.
Anti-spam check. Do
not
fill this in!
== Cost structure and profitability potential == We expect gross margins to be positive for the full year 2017, though we see seasonal revenue effects driving negative gross margins in 1Q17. We expect gross margins to expand aggressively as revenue scales, improving nearly 40pp in 2017 to 26%, and reaching 77% in 2021. We believe Snap will break even on a non-GAAP EBITDA basis in 2019, and we expect positive GAAP operating and net income in 2021. '''Cost of revenue and gross margins''' Snap outsources its infrastructure costs (hosting, storage, compute, memory, etc.) to Google Cloud Platform, having committed $400mn in annual spend for each of the next five years. In addition, Snap is increasing its use of Amazon’s AWS, having committed $1bn in spend over the next five years ($50mn, $125mn, $200mn, $275mn, and $350mn annual minimums, scaling from 2017 through 2021). Most of Snap’s competitors, in contrast, have leveraged capex-heavy models where owned or leased data centers are purpose-built, with higher initial cash outlays, but potentially lower recognized expenses. Given the very low monetization of its users in 2015-16, the associated costs from Google Cloud, and revenue share agreements with content partners, gross margins were negative in 2015 and 2016, though we expect higher monetization in 2017 to drive positive gross margins this year. Snap’s cost of revenue is largely made up of three components: # Infrastructure costs – these costs represent what Snap Inc pays to third-party, public cloud vendors (primarily Google Cloud, but increasingly AWS). We estimate this accounted for 75% of Cost of Revenue in 2016. These costs are driven by infrastructure needs, and costs will scale with users. Additionally, these costs could fluctuate based on patterns of usage on Snapchat – as users create and consume more video content, and store more Snaps in Memories, infrastructure costs per user would increase, all else being equal. We expect user behavior to shift increasingly toward resource-intensive activities, with increased costs offset by expected price reductions from public cloud vendors. We expect infrastructure costs to represent 64% of cost of revenue (CoR) in 2021. # Partner revenue share – When advertisements are placed on partner content (featured Stories, Publisher Stories, and Discover platform), Snap recognizes revenue differently based on whether Snap or the partner sold the ad. For Partner-sold ads, Snap recognizes the revenue net at 100% contribution margin. If Snap sells an ad placed on partner content, Snap recognizes the revenue gross, and remits the partner’s share to the partner, recognizing it as a cost of revenue. These remittances accounted for 13% of total cost of revenue in 2016, and we expect that to grow to 26% by 2021 as revenue growth (and thus partner share) outpaces CoR growth. # Publisher tools and other – this includes the cost associated with the tools Snap has developed to assist publishers and advertisers in developing content and advertising creative on the platform. It also includes the costs associated with the manufacturing of Spectacles. We estimate these other costs accounted for 12% of CoR in 2016, and we expect that to shrink to 10% in 2021, even as the absolute costs associated with Spectacles and Other increase. Operating expenses for Snap are largely a function of headcount. The company had 600 employees at the end of 2015, and more than tripled that figure in 2016 to 1,859. We expect the company to continue its rapid pace of hiring for the foreseeable future, though we expect per-head expenses to slowly increase beginning in 2019 as hiring stabilizes and marketing expenses continue to ramp in absolute terms. We expect gross margins to be positive in 2017, adjusted EBITDA margins to turn positive in 2019, and FCF to turn positive in 2020. We do not foresee a need for further funding, as we expect the net proceeds from the IPO to be sufficient for the company to reach positive cash flow. We believe Snap’s long-term adjusted EBITDA margin could reach 30-40% as a mature, fully scaled business.
Summary:
Please note that all contributions to Stockhub may be edited, altered, or removed by other contributors. If you do not want your writing to be edited mercilessly, then do not submit it here.
You are also promising us that you wrote this yourself, or copied it from a public domain or similar free resource (see
Stockhub:Copyrights
for details).
Do not submit copyrighted work without permission!
Cancel
Editing help
(opens in new window)