Snap vs Netflix: why is Snap's cash flow negative after stock pay?
Snap keeps 55.0% of its revenue after paying its cost of revenue, the direct cost of making and delivering its product. Netflix keeps 48.5%, and that figure includes a one-off tax charge. On gross margin alone, Snap looks like the more profitable business.
Count the shares Snap pays its staff as a cost, though, and its free cash flow for fiscal 2025 was negative. This case follows $100 of sales down both income statements and then into the cash flow statement, using the two companies’ 2025 filings with the SEC.
Video: Snap vs Netflix on YouTube
The question
Snap has the higher gross margin, so why is its cash flow negative after stock pay? All figures below are fiscal year 2025, GAAP, as a percentage of revenue unless stated, rounded to one decimal; components may not sum because of rounding.
Snap: where $100 of sales went
In 2025 Snap had $5.9 billion of revenue ($5,931 million).
| Line | % of revenue |
|---|---|
| Cost of revenue | −45.0% |
| Gross margin | 55.0% |
| Research and development ($1,794M) | −30.2% |
| Sales and marketing ($1,021M) | −17.2% |
| General and administrative ($979M) | −16.5% |
| Operating margin | −9.0% |
| Non-operating items* | +1.4% |
| Tax | −0.2% |
| Net margin | −7.8% |
* Includes a one-off gain of $96.7 million on debt Snap repurchased for less than its book value. Without it, non-operating items would be slightly negative.
So for every $100 of sales, Snap has $55 left after making the product and spends $64 running the company.
Netflix: the same statement, the same scale
Netflix had $45.2 billion of revenue ($45,183 million).
| Line | % of revenue |
|---|---|
| Cost of revenue* | −51.5% |
| Gross margin | 48.5% |
| Technology and development (Netflix’s R&D) | −7.5% |
| Marketing | −7.3% |
| General and administrative | −4.2% |
| Operating margin | 29.5% |
| Non-operating items | −1.3% |
| Tax | −3.9% |
| Net margin | 24.3% |
* Includes a one-off Brazilian tax charge of about $619 million, mostly relating to 2022–2024, worth about 1.4 points of revenue.
The product costs Netflix more, but running the company costs it only $19 per $100 of sales. In dollars that comes to about $8.6 billion, more than Snap’s $3.8 billion; Netflix simply sells so much more that the same spending is a far smaller share of revenue.
Side by side
A difference between two percentages is measured in points, and here one point means $1 out of every $100 of sales. In the last column, green means better for Snap and red means worse; for cost rows, lower is better.
| Metric | Snap | Netflix | Snap − Netflix (points) |
|---|---|---|---|
| Cost of revenue | 45.0% | 51.5% | −6.5 |
| Gross margin | 55.0% | 48.5% | +6.5 |
| Cost to run the company (R&D, marketing, G&A) | 64.0% | 19.0% | +45.0 |
| Operating margin | −9.0% | 29.5% | −38.5 |
| Net margin | −7.8% | 24.3% | −32.1 |
| Stock-based compensation | 17.1% | 0.8% | +16.3 |
| Free cash flow | 7.4% | 20.9% | −13.5 |
| Free cash flow after stock comp. | −9.8% | 20.1% | −29.9 |
Part of the gross-margin gap comes from accounting choices. Netflix books the cost of its films and series in cost of revenue, which lowers its gross margin. Snap books its engineers under research and development, below the gross margin line, so they don’t. The two gross margins are therefore not fully comparable.
Cash, and the shares paid to staff
Free cash flow comes from a different report, the cash flow statement, and only counts cash that actually leaves the company. Paying staff in shares uses no cash, so free cash flow doesn’t subtract it, even though those shares are still pay.
- Snap’s stock-based compensation was $1,017 million, 17.1% of revenue; Netflix’s was 0.8%.
- Snap’s free cash flow was $437 million, 7.4% of revenue; Netflix’s was 20.9%.
- Counting stock pay as a cost, Snap’s free cash flow becomes −9.8% of revenue; Netflix’s becomes 20.1%.
New shares for staff make every owner’s slice a little smaller, and a company can offset that by buying shares back with cash. Since stock pay is already counted as a cost here, buybacks aren’t counted as a second one. For reference, Snap spent $751 million on buybacks in 2025, more than its entire free cash flow of $437 million. What that did to Snap’s share count would need the filed share counts, which this case doesn’t analyse.
Of every $100 of sales, Snap ends with −$9.80 of free cash once stock pay is counted, and Netflix with $20.10.
Five years of operating margin
A single year can mislead, so here is operating margin over the same five years for both companies.
| Fiscal year | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Snap | −17.1% | −30.3% | −30.4% | −14.7% | −9.0% |
| Netflix | 20.9% | 17.8% | 20.6% | 26.7% | 29.5%* |
* Includes the Brazilian tax charge.
Snap improved by 8.1 points and Netflix by 8.6. The gap was 38.0 points in 2021 and 38.5 points in 2025, so over this window it didn’t close.
Takeaway
Snap’s higher gross margin didn’t tell us which business is more profitable. Gross margin is about the product, and operating margin is about the company. When comparing two businesses, it pays to read the whole statement, look at several years, and treat shares paid to staff as a cost.
Methodology
- Period: fiscal year 2025 for both companies, not trailing twelve months. Netflix’s trailing figures include a $2.8 billion termination fee recorded in Q1 2026, which would distort a single-period comparison.
- Sources: FY2025 earnings releases filed with the SEC (Form 8-K) and annual reports (Form 10-K) of Snap Inc. and Netflix, Inc.; FY2021–FY2024 operating margins from the respective Form 10-K filings (SEC EDGAR). Income-statement line items are taken from the filings, not from third-party data vendors.
- Margins: GAAP, as a percentage of revenue, rounded to one decimal.
- Free cash flow: as defined by each company (non-GAAP). “Free cash flow after stock comp.” = free cash flow minus stock-based compensation expense, both as % of revenue.
- Corrections: if we find an error, we correct it here and say so.
Disclaimer
Educational and informational only. Not investment advice, not a recommendation to buy, sell or hold any security, and not an offer or solicitation. The analysis describes historical, publicly filed data; past results do not indicate future results. Verify against the original filings before relying on them.
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