About the Company
Snap Inc. operates as a camera company that is based out of North America, however it operates in almost every continent. The primary product that the company offers is Snapchat, a social media application which enables people to communicate through short videos and images. In addition to this, the company specializes in Augmented Reality and Artificial Intelligence technology, offering a variety of products in connection with this, such as Spectacles. These are an eyewear product that connects with the Snapchat app and captures photos and videos from a human perspective. Snapchat earns its revenue primarily from advertisements, such as AR Ads, dynamic ads, collection ads, and traditional commercials. The company has been receiving a lot of hype ever since it declared its quarterly results on the 3rd February 2022.
In most modern countries such as the US, UK, France, as well as Australia, over 75% of the target demographic (13-to-34-year-olds) use Snapchat, creating a very large user base that is attractive to advertisers.
The Daily Active Users (DAU) are up 20% to 319 million people, and over the past 5 quarters, the company has never seen YoY DAU growth drop below 20%.
Its latest earnings report largely outperformed expectations, with revenues growing 64% to $4.12 billion and adjusted EBITDA skyrocketing 1,265% to $617 million.
Since Snap’s advertisements focus largely on brand awareness and not on business development, they do not require conversions or sales, which means that they have been largely unaffected by the changes in Apple’s advertising policy changes, despite the CFO stating that a transition period might be necessary.
The company has made a profit for the first time, and all its fundamentals seem to be facing the right way: there is an increase in the user base (as opposed to its rival Meta), an increase in the revenue per user, and higher free cash flow into the business, making it a great long term growth stock.
Snap’s ads are now poised to withstand any future privacy changes too, since the company has reduced its dependence on third party data and rolled out multi-platform ads. Therefore, the price of Snapchat’s ads have grown over 46% YoY in Q3-2021.
The Snap stock tumbled after Meta Platforms disappointed investors last week with decelerating growth and a weaker guidance. As investors worried that Snap’s earnings could potentially disappoint too, the stock plummeted, losing about a fourth of its value.
Snap underestimated the effect that Apple’s privacy changes would have on its user base, which led to it missing revenues in the third quarter of 2021.
While the stock seems to have taken a hit due to unfounded concerns regarding its earnings after the Meta earnings report, all the fundamentals and the hype factors seem to indicate that this is a strong growth stock that has nothing but a long open road ahead to profitability. Since the company just turned its first new profit and is targeting a user base that is only growing, Snap could very well reduce its operating expenses, boost their revenue per user, and ride the positive hype all the way to massive profitability.
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