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Snapchat's Comeback Story

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Snapchat (SNAP - Free Report) - a stock that had been hammered from its IPO back in March of 2017 all the way into the end of 2018 – is now making a comeback. SNAP has illustrated more than 200% share price appreciation since the beginning of 2019.

Snap Inc. Price, Consensus and EPS Surprise

Snap Inc. Price, Consensus and EPS Surprise

Snap Inc. price-consensus-eps-surprise-chart | Snap Inc. Quote

The catalyst being international user expansion and the firm’s ability to further monetize each user. Snap hit an all-time high of 203 million daily active users in Q2, representing 8% growth. Snap’s DAUs were finally thrown back into growth following a 12-month user decline in 2018.

The firm continues to grow its average revenue per user (ARPU) at a year-over-year rate consistently over 30%. The reliable ARPU growth is giving investors much more confidence in Snap Inc.

Snap’s advertising remains the weakest of its social media cohorts, with its primary competitors consisting of Facebook (FB - Free Report) , Instagram, Pinterest (PINS - Free Report) , and Twitter (TWTR - Free Report) . According to a recent survey by RBC, only 24% of advertising professionals use Snapchat in their work (95% of them using social media platforms).

Snapchat caters to a younger audience, with 90% of Americans between the ages of 13 to 24 years old using this platform regularly. This younger audience may be the reason that advertisers aren’t rushing to Snap Inc. Yes, teens do create a sizable market with daddy and mommy’s cash, but this audience doesn’t typically have a credit card readily available for purchases. User loyalty among teenagers is much lower than any other age group as this age group tends to jump from trend-to-trend rather quickly.

Yet 3.5 billion snaps are created daily by Snapchatters, illustrating the enormous amount of potential this company has. The room for monetization appears to be endless as long as user growth can continue.

Snapchat’s investment into augmented reality is not only bringing in more users but could have applications way beyond its own platform. The augmented reality segment could be licensed out for other applications and firms to use.

Take Away

Snapchat is making a comeback in a big way with a resurgence in user growth and ARPU’s continuing to raise. There is an enormous amount of growth potential with 76% of advertising professionals not using this platform at all.

The primary issue that Snapchat faces is its young user demographic. Teenage users tend to be less loyal and more prone to follow trends. Snapchat needs to further penetrate the adult market if they want to maintain their ARPU growth and continued share price appreciation.

 

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