In This Article:
Snapchat operator Snap (NYSE: SNAP) reported fourth-quarter earnings earlier this month and has just filed its related annual Form 10-K with the SEC, and it contains much more detailed information regarding the business. Fourth-quarter results were better than expected, but that was merely a reprieve after horrendous third-quarter results.
Here are four important takeaways for investors from the filing.
Image source: Snap.
Head count growth is slowing
After growing too quickly for a couple years, Snap employees have been hit with numerous rounds of layoffs. CEO Evan Spiegel has acknowledged that Snap hired too aggressively, while certain products underperformed -- most notably Spectacles -- and required layoffs to cut costs. Snap is now focusing on trying to make its existing workforce more productive, although it will still hire as necessary.
On the earnings call earlier this month, CFO Drew Vollero said, "Head count growth continues to moderate, thanks to productivity gains from our team. Net additions in the quarter were slightly more than 100, one-third of the rate of recent quarters." According to the filling, Snap finished 2017 with 3,069 employees.
Data source: SEC filings and earnings conference calls. Chart by author.
The rate of headcount growth has indeed slowed.
The redesign is risky
Snap is in the midst of a crisis right now related to the major redesign that is rolling out this quarter. There has been considerable user backlash, including most recently from celebrity Kylie Jenner. At least two Street analysts have downgraded Snapchat shares due to the inherent risk associated with such an ambitious undertaking. The company has now added additional risk factor legalese to acknowledge it:
Additionally, we introduced a major redesign of the Snapchat application in December 2017 that rolled out more broadly in February 2018, which has received negative attention in the press and in app store reviews. The short- and long-term impact of any major change, like our recent redesign, is particularly difficult to predict. If new or enhanced products fail to engage our users, advertisers, or partners, 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.
Once the deployment is complete, investors should pay close attention to Snap's reported user metrics to gauge the overall reception.
Excessive executive compensation
Snap also discloses the total compensation packages for its top execs.