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Investing.com -- On February 10, 2025, Moody’s (NYSE:MCO) Ratings assigned a B1 corporate family rating (CFR) and B1 rating to the proposed senior unsecured notes maturing in 2033 to Snap Inc (NYSE:SNAP). The company also received a Ba3-PD probability of default rating (PDR) and an SGL-1 Speculative Grade Liquidity (SGL) rating, indicating a very good liquidity status. Moody’s outlook for Snap Inc. is positive.
Snap Inc. plans to use a proposed $700 million offering in senior unsecured notes to repurchase a portion of its convertible debt securities and for general corporate purposes. The B1 CFR reflects Snap’s strong market position, promising growth prospects, and the anticipation of significant free cash flow. However, the rating also considers the intense competition faced by Snap from larger entities and its inconsistent financial and operating performance in the latter half of 2022 and in 2023, largely influenced by Apple (NASDAQ:AAPL) privacy updates.
In 2024, Snap saw a return to double-digit growth. Moody’s projections for the end of 2025 and 2026 indicate a negative total debt-to-EBITDA, partly due to an expected $1 billion in stock-based compensation expense for both years. Excluding the impact of this compensation, the total debt-to-EBITDA is expected to be 5.3x in 2025 and 3.4x in 2026.
Snap’s B1 CFR reflects the company’s improved operating performance, scale, well-established competitive position among the 13 to 34-year-old demographic, and conservative financial policies. With over 450 million daily active users (DAU) and 850 million monthly active users (MAU), Snap is among the world’s largest communication/social media platforms. Since January 2020, the company has grown its revenue at about a 25% compounded annual growth rate (CAGR), maintained more than $3 billion of cash on its balance sheet, added close to 200 million DAUs, and increased its average revenue per user by more than 20%.
Despite these strengths, Snap faces intense competition, has a smaller scale relative to competitors based on revenue, DAUs, and free cash flow generation. The company competes against larger social media platforms, such as Meta (NASDAQ:META) and Alphabet (NASDAQ:GOOGL), which have significantly more financial and human capital resources and stronger credit profiles. Other factors considered in the rating include the company’s exposure to regulatory risks, the cyclical nature of the advertising market, and the threat of disruptive technologies.
Snap is expected to maintain very good liquidity over the next 12 to 18 months, supported by more than $3 billion in cash as of September 30, 2024, an undrawn $1,050 million revolving credit facility, and expected free cash flow of more than $350 million in 2025 and about $700 million in 2026.
The ratings could be upgraded if the company remains committed to a conservative balance sheet management and liquidity, achieves continued strong revenue growth, and increases free cash flow generation such that free cash flow to debt approaches 10%. Conversely, the ratings could be downgraded if the company’s liquidity and operating performance deteriorates, free cash flow weakens significantly, the cash to debt ratio declines significantly, or the company shifts to a more aggressive financial policy.
Snap Inc. is a technology company known for Snapchat, a visual messaging application. The company aims to enhance digital presence and improve customer engagement through various initiatives, including services like Camera, Visual Messaging, Snap Map and Spotlight.
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