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Deep Dive: Snap Inc

Until recently, Snap Inc, the parent company of Snapchat, was under the shadow of social media giants like Facebook, Instagram and TikTok. In 2018, the app began losing users, prompting a string of company executives to leave the company and its stock fell to an all-time low of US$ 5. Ever since that disastrous year, Snap Inc has made quite a turnaround, recording a 157% increase in daily active users (DAU) since December 2018 and a 116% Y-o-Y increase in revenue in Q2 2021. The turnaround has led to a staggering 15x increase in its stock price in the past two years. So what led to Snap’s meteoric rise? What are the risks it faces? What are its most recent acquisitions? We’ll answer these questions and more in the second edition of Deep Dive. 

Deep Dive is a brand new series that will dissect businesses and delve into their financials, acquisitions, the risks they face and much more. 

New Initiatives

Creator Marketplace: Given the rise of the creator economy, Snapchat didn’t want to miss out and announced its Creator Marketplace in May this year. The marketplace allows brands to connect with influencers to create tailored AR content and experiences for users. The platform will be expanded to include its entire creator community by early 2022. The Creator Marketplace, which functions as a directory of creators, can be used by businesses to search for creators based on their language, location, and budget, while creators can use the database to build their own business on Snapchat. 

Spectacles: Snapchat, which is currently available in more than 30 languages and has offices in more than 15 countries, unveiled its first AR-based Spectacles in its annual partner summit. The product’s dual 3D waveguide displays allow wearers to overlay the company’s AR filters- Lenses, onto the real world. Other features include- two stereo speakers, two cameras, built-in touchpad controls and four built-in microphones. The glasses can be used for around half an hour, which indicates that they’re not mass market-ready. Spectacles are currently not available for sale, but the company is providing them to an undisclosed number of AR creators. 

Story Studio: Story Studio is a standalone app that equips creators with powerful editing tools to make professional vertical videos on their mobile phones. The app, which is expected to debut on iOS later this year, will also provide insights into trending topics, sounds and lenses on Snapchat. 

Screenshop: Scan is a computer vision-based feature found on Snapchat with more than 170 million users. Screenshop is a new feature available under Scan, which will provide shopping recommendations from brands when users scan an outfit from their friends.

Snap Goes Desi

In October last year, Snapchat revealed that it saw a 150% jump in Indian users between the third quarter of 2019 and 2020. And the company’s user base in India is said to have crossed the 60 million mark in the country in the fourth quarter of 2020. In the past few years, Snap Inc has focussed on ramping up its offerings in the country, and multiple factors have led to its growth: 

  1. Snap rebuilt its buggy and neglected Android app and added support for nine Indian languages. It also introduced an India-specific version of its Discover platform that now has over 85 local channels serving culturally relevant content for Indian users. 
  2. TikTok’s ban in India, coupled with the increased need for virtual connection as people were stuck at home due to the pandemic, helped it gain some ground.  
  3. India is one of the few countries where Snap Inc has invested in localising its product, including building local AR creator communities, local content and investing in local marketing initiatives. Prominent initiatives include: 
  • Spotlight: Snap Inc debuted its TikTok clone– Spotlight in March this year, almost four months after its debut in the US. Spotlight displays personalised 60-sec videos from its users in a vertical feed within Snapchat. The feature, which is already quite popular, boasts 100 million users as of January this year. It differs from similar features offered by other social media websites as users have to submit their content to Spotlight, and the content will be accepted if it adheres to the company’s content guidelines. The Santa Monica, California-based company has been generously paying creators US$ 1 million per day for top-performing videos on Spotlight. The app has claimed that since November last year, more than 5,400 creators have collectively earned over US$ 130 million. The scheme has since been replaced, and Snap will instead offer millions every month.
  • Phone Swap India: On March 27th, 2021, Phone Swap India, Snap Inc’s first original series for the Indian market, debuted on Snapchat’s Discover platform. The mobile-first 12-episode show is a Hindi version of Snap Inc’s original reality dating series Phone Swap, currently in its 12th season in the US. Last year, the company claimed that more than 70 million people in India watched a show on Snapchat.


Peering through Snap Inc’s Q2 2021 earnings report reveals some interesting insights.


  1. Snapchat more than doubled its revenue for the three months ended June 30, 2020, and 2021, from US$ 454 million to US$ 982 million. Total costs and expenses for the same period increased from US$ 765 million to US$ 1.1 billion.  
  2. Net loss for Q2 2021 has been narrowed down to US$ 151 million from US$ 326 million last year. 
  3. Daily active users (DAU) increased 23% Y-o-Y to reach 293 million, while the average revenue per user (ARPU) was US$ 3.35, an increase of 76% Y-o-Y in Q2 2021. 
  4. Cash flow from operating activities for Q2 2021 is still in the red at US$ 101 million, down from US$ 66 million in the comparable quarter.

Revenues and Expenses


Snap Inc derives almost all of its revenues from its various advertising products, which include Snap Ads and AR Ads. AR Ads can be subdivided into Sponsored Lenses and Sponsored Filters. Sponsored Lenses enable users to interact with an advertiser’s brand through branded augmented reality experiences. Sponsored Filters allow users to interact with an advertiser’s brand by overlaying stylized brand artwork on a Snap. A majority of the advertising revenue is from Snap Ads which are either based on a fixed fee over a period of time or based on the number of advertising impressions delivered. Snap Inc also generates revenue from the sale of hardware, but the amount was not reported as it was insignificant. 

Snapchat has never declared or paid cash dividends, and it doesn’t intend to do so for the foreseeable future as it aims to plough back its earnings to finance its operation and expansion. Also, Snapchat’s credit facility includes restrictions on its ability to pay cash dividends. 

Cost of Revenue

The cost of revenue is primarily driven by payments to third-party infrastructure partners for hosting Snapchat’s products. The payments include expenses related to computing, storage and bandwidth costs. In 2017, Snapchat entered into a contract with Google Cloud and AWS to spend US$ 2 billion over five years and US$ 1.1 billion over six years, respectively. 

Higher content costs related to Spotlight, which amounted to US$ 75.6 million in Q2 2021, also contributed to the increase in the cost of revenue. 

Research and Development Expenses 

This component primarily consists of personnel-related costs for the employees engaged in R&D. The R&D costs are expensed as incurred and not capitalised. R&D expenses increased by US$ 110 million Y-o-Y in Q2 2021, driven by growth in the headcount in R&D, increased stock-based compensation expense, and changes in the cash compensation programs. 


For the six months ended June 30, 2021, Snapchat’s total purchase consideration was US$ 713 million. Snapchat’s most recent acquisitions include: 

Fit Analytics 

Snapchat acquired Fit Analytics, a German footwear and apparel sizing company, in March this year for US$ 124.4 million. The amount primarily represents current and future cash consideration payments. The acquisition will help Snapchat grow its e-commerce and shopping verticals.    

Wave Optics 

Snapchat acquired British AR technology company- Wave Optics in May 2021 for a staggering US$ 541.8 million. Of the total amount, US$ 510.4 million was purchase consideration, and US$ 31.4 million represents compensation for future employment services. The purchase consideration consisted of 4.7 million shares of Snap Inc’s Class A common stock with a fair value of US$ 252.0 million, US$ 238.4 million payable due by May 2023 and US$ 13.7 million in cash. 

The total amount spent on other acquisitions for the six months ended June 30, 2021, is US$ 78.3 million. 



Snapchat cites recent changes to privacy laws and mobile operating systems as one of the reasons that has made it difficult to collect and disclose relevant metrics to advertisers. Apple’s new privacy feature, which began rolling out in April this year, sends a pop-up notification that prompts users to allow tracking across websites and other apps. 

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Human Resources

Prominent human resources related issues faced by Snapchat include: 

  • Stock-based compensation: Given that a large portion of its employment cost is based on the value of its stock, a particularly volatile stock could hurt the attractiveness of the package it offers to its current and prospective employees. Increasing stock-based compensation also dilutes the ownership of existing shareholders. 
  • Remote work: With the rise in the number of remote and hybrid job postings, Snapchat has been faced with increasing competition for competent personnel from employers outside of its traditional office locations.


Snapchat has cited the mimicking of its products or improvisation of them as one of the risks it faces. Snapchat has identified Instagram as one of the competitors that has indulged in such behaviour, stating that it has mimicked its Stories feature. It has also stated that it expects Facebook to continue mimicking other aspects of Snapchat’s core use case. Other competitors mentioned in the report include Apple, Facebook, ByteDance, Google, Kakao, LINE, Naver, Tencent, Discord, Roblox and Twitter.

Advertising Revenue 

Snapchat’s extreme reliance on advertising revenue is evidenced by its share of total revenue- 99%, 98%, and 99% of total revenue for the years ended December 31, 2020, 2019, and 2018, respectively. Snapchat expects this trend to continue for the foreseeable future. Snapchat also states that most advertisers do not have long term commitments with it. 


While Snapchat’s turnaround has been remarkable, it has a long way to go before taking on the giants- Facebook, Instagram and TikTok and the platform still has a vastly lesser number of users compared to those three. Snapchat faces heightened competition, finicky users, relatively low barriers to entry and overreliance on advertising revenue. But despite these challenges, Snapchat got its priorities right by focusing on fixing its Android app, investing in emerging markets and new technologies. If it continues to follow such a shrewd strategy, it may have a chance at toppling the giants

For more extensive analysis and Market Intelligence reports feel free to approach us or visit our website: Venture Capital Market Intelligence Reports | VCBay.

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