Also interesting is that Snap's free cash flow is higher than its net income. As the chart above shows, Snap has made progress in improving both its free cash flow and net income versus previous years. Investors can also turn to free cash flow as a proxy for a company's earnings power, because it measures actual cash generation without the non-cash adjustments. Depreciation and amortization may be non-cash, but they relate to capital expenditures, which are also real cash expenses. Net income is also an important metric, because taxes and interest on debt are real expenses. Using EBITDA makes it easier to compare different companies. Though EBITDA doesn't reflect all expenses, investors like to use the metric, because depreciation and amortization are non-cash expenses (accounting adjustments), and companies can have vastly different tax rates and interest rates on debt. However, the company is less unprofitable than it was a year ago and could report positive earnings in the coming quarters if it continues to grow at a fast rate. In the eyes of many investors, that means the company is still unprofitable. Snap has reported positive EBITDA, but it still has negative net income. This is referred to as operating leverage, and it should continue to benefit the company as it grows its top line. What drove the turnaround? Greater scale allowed the company to grow its revenue faster than its expenses. What's more, that was the second time Snap reported positive EBITDA in the past four quarters. As you can see in the third quarter, EBITDA came in at $56 million, reversing a $42 million loss in the prior-year period. The revenue growth at Snap is exciting, but perhaps even more impressive is the company's rising profitability.
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