SNAP earnings

For those who follow, SNAP reported earnings today, and was promptly taken back 'round the woodshed and soundly beaten such that the police were called (shares down 27% after hours).

THE DATA
Revenue up 57% yoy reaching 1.067M
Net losses reduced 64% yoy
Free cash flow cratered to $52M from 70M in the prior year
User numbers rise 23% yoy (4th consecutive quarter > 20%)

THE BAD NEWS
I believe the punishment that ensued is due to dismay on the revenue miss (and FCF fell) and the guidance that was, at best, cautious. This represents the first tangible evidence of large-scale collateral damage to a big player in the advertising industry as Apple IDFA changes kick in.

THE GOOD NEWS
First off, I believe the ad revenue hit courtesy IDFA will be softened both in the short-term as the data is analyzed and in the long term as companies like SNAP, TTD, etc. innovate. But more importantly, I believe the Market continues to miss the mark on what SNAP is really doing based on my research of the company and personal communication from employees who work there.

SNAP is aiming to be a world-wide AR/VR leader. This is not merely your kid’s social media darling, or even an advertising agency. 3D bimoji technology, though seemingly a kid-level gimmick technology, is really representative of early stage technology in the space. A conceptual test drive. In this quarter they launched Arcadia, an AR studio to develop and sell AR experiences, and have a partnership with WPP called AR Lab to develop and sell immersive experiences on Snapchat.

(https://www.wpp.com/news/2021/09/wpp-and-snap-inc-launch-aug…).

Disclosure:
I added 1% to SNAP today after hours (a rare example of when I try to catch a falling knife) and it now represents 4% of my portfolio.

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It’s interesting to see the reaction that SNAP’s guidance and management’s comments have had on other tech companies in the advertising sector particularly.

As someone who has about one-third of my portfolio in Magnite and Trade Desk, combined, I’ve been following it closely. At least for Magnite, where their focus has already shifted largely to CTV, the Apple IDFA changes should have less impact.

However, the other comment SNAP made is that the supply chain issues have led to fewer products being available for sale in the U.S. and therefore, advertisers are cutting back on spend due to simply not having enough products that need the promotion. That part could impact all of these companies, including CTV, a bit more, at least until the supply chain bottlenecks are cleared.

The good news is that all ad spend isn’t just for physical products stuck in containers off the California coast. Advertisers also buy ads to promote restaurants, technoly products, service businesses, etc, which may not have as much to lose by the situation at the ports.

We won’t hear from ROKU, TTD, MGNI until the first week of November. I’m betting the news won’t be as bad for them, so I’ll probably be holding firm with my Magnite and Trade Desk positions, but this does put a spotlight on one aspect of the supply chain situation that I had previously thought would not feel much impact.

-mekong

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