Snap gave away massive stock awards as it competed for talent last year

Key Points
  • Snap spent way more on stock-based awards in its first year on the public markets than did Facebook, Twitter or LinkedIn.
  • An analyst expects the number to fall from $2.6 billion in 2017 to $900 million this year.
Snap cofounders Evan Spiegel (C) and Bobby Murphy ring the opening bell of the New York Stock Exchange (NYSE) with NYSE Group President Thomas Farley shortly before the company's IPO in New York, U.S., March 2, 2017.
Lucas Jackson | Reuters

If you want to know how a company like Snap can lose almost $3.5 billion in a year, look no further than stock rewards to engineers.

In 2017, the year it went public, Snap recorded a stock-based compensation expense of $2.6 billion, accounting for 77 percent of its net loss and more than three times the amount it generated in revenue.

Snap reported fourth-quarter results on Tuesday and said that its share-based pay jumped 27-fold from a year earlier to $181 million, with 72 percent tied to research and development.

Internet companies commonly use stock awards as a way to lure developers in a highly competitive market, where cash-rich companies like Google and Facebook can pay much higher salaries. But even among its closest peers, Snap has counted on equity to an outsized degree.

Facebook recorded stock-based compensation of $1.6 billion the year it went public, but generated over $5 billion in sales. Twitter's expense of $600 million in 2013 was slightly less than its revenue, while LinkedIn had just a $30 million expense and $522 million in sales in 2011, the year it debuted on the market.

In its first quarterly report as a public company, for the period ended in March, Snap recognized $2 billion of stock-based compensation, including $636.6 million for awards to CEO Evan Spiegel.

Snap said in its IPO prospectus that restricted stock units include performance incentives and time-based incentives, with most of the latter vesting over four years. But Spiegel was issued a stock award that vested immediately at the time of the IPO, representing 3 percent of all outstanding shares and delivered in "equal quarterly installments over three years beginning in the third full calendar quarter following this offering."

Analysts at Raymond James predict Snap's stock-based compensation this year will be $900 million, with the number falling to $850 million in 2019.