SNAP, inc.

I’d like to bring up SNAP to the board for consideration.

Snapchat is another social media platform similar to Facebook/Instagram, Twitter, Pinterest, LinkedIn but they position themselves as a camera company where they “believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.” (This is taken from their homepage)

Their business model is similar to that of the other social media platforms where they generate revenue through advertising. However, what’s unique about Snap is that they have a variety of innovative ways to advertise on their platform. You can sponsor a lens, you can sponsor stories (similar to Instagram Stories which stole the idea from Snap), you can sponsor geofilters, ads for their Discover platform, etc. For a list of their other advertising capabilities, I found: https://wallaroomedia.com/snapchat-advertising-costs/ helpful. What’s also interesting is that 6 months ago, Shopify and Snap announced a partnership where businesses can buy Snap story ads on Shopify’s platform (https://www.cnbc.com/2019/04/29/snap-shopify-partner-for-sma…)

Snap has seen a lot of volatility in the public markets since its IPO in March 2017 due to some questionable decisions by Evan Spiegel (Snap’s CEO) in 2018 where they redesigned the Snapchat interface due to Facebook stealing a lot of their ideas and Snap trying to do something unique to increase engagement, but this unfortunately backfired. Snap has come a long way since their 2018 woes and has continued to innovate and they are really pushing the envelope when it comes to AR. Evan has also matured a lot as a CEO and per Glassdoor, his ratings are going up as well as a lot of the other company ratings: https://www.glassdoor.com/Reviews/Snap-Reviews-E671946.htm. Also, the current Glassdoor reviews don’t really tell the whole story since it contains 2018’s terrible reviews when everyone was fleeing the company. If you use the app, Blind, basically Silicon Valley’s equivalent of Reddit (https://apps.apple.com/us/app/blind-anonymous-work-talk/id73…), many people who work at Snap have stated that morale has gone up a lot and that the company is doing a lot better.

Personally, I think Evan Spiegel is incredibly talented and innovative given what he’s done with Snap and the variety of features he’s introduced to the platform. A big reason I am an investor in this company is due to my belief that Evan will continue to develop new ideas that should help Snap remain sticky with their core users (teenagers and millennials).

Piper Jaffray recently did a survey of all teenagers and while Instagram has the highest engagement from a social platform, Snapchat is only slightly behind: http://www.piperjaffray.com/2col.aspx?id=5752

Snap has also gone into gaming on its platform and the Verge has an interesting article about what Snap is planning on doing: https://www.theverge.com/2019/5/1/18525168/snapchat-games-bi….

From a stock perspective, SNAP has seen highs of $29 and a low of $4.82 which happened less than a year ago on December 21, 2018 when the entire market was selling off. Since the start of 2019, the stock has risen over 175% to $15.18 as of market close yesterday. They have a market cap of $21.3 B and an EV/S of 13.

A big reason for Snap’s huge rebound this year is due to their sequential growth in daily active users (DAUs) in the recent quarters after last year’s stagnant/declining growth:


DAUs
	Q1	Q2	Q3	Q4
2018	191	188	186	186
2019	190	203	210

A big reason for this rebound in DAUs is due to their focus on improving the Android version of Snapchat which prior to 2019, was kind of a clunker of an app. In addition, they’ve seen a lot of growth in the “Rest of the World” which is starting to become a bigger focus. They’ve forecasted DAUs to be around 214-215 M in Q4.

They recently announced their Q3 earnings where they grew revenue 50% YoY to $446 M. This is an acceleration from revenue growth seen in Q2 and Q1 of this year. In Q2, they forecasted $410 to $435 M and they ended up putting up $446 M! In Q1 they had forecasted revenues between $335 to $360 M and they ended up with 388 M!. This was a huge beat and the numbers they put up in Q3 only continue to demonstrate their turnaround story.

From a company financials perspective:


	Q1	Q2	Q3	Q4	Revenue
2016	39	72	128	166	405
2017	150	182	208	286	826 (104.0%)
2018	231	262	298	390	1,181 (42.9%)
2019	320	388	446		 


% Increase
	Q1	Q2	Q3	Q4
2017	285	153	63	72
2018	54	44	43	36
2019	39	48	**50**		


Gross Margin
	Q1	Q2	Q3	Q4
2017			21	36
2018	17	30	36	48
2019	39	46	**51**

**Accelerating!**	


ARPU Global				
	Q1	Q2	Q3	Q4
2017	$0.90	$1.05	$1.17	$1.53
2018	$1.21	$1.40	$1.60	$2.09
2019	$1.68	$1.91	$2.12	


ARPU % YoY
	Q1	Q2	Q3	Q4
2018	34	33	37	37
2019	39	36	33	


ARPU - North America
	Q1	Q2	Q3	Q4
2017	$1.81	$1.97	$2.17	$2.75
2018	$2.10	$2.21	$2.62	$3.38
2019	$2.81	$3.14	$3.75	


ARPU - North America % YoY
	Q1	Q2	Q3	Q4
2018	16	12	21	23
2019	34	42	**43**	

**NA ARPU is growing faster this year than last year!!!**

Snap has a lot potential growth ahead of itself with their increasing DAUs, the introduction of Snap Gaming, the increasing usage of their Discover platform, their variety of ad formats that are more engaging than other types of ad formats you see in other social platforms and the fact that so many brands are trying to reach Gen Z and Millennials since they are becoming the biggest consumer demographic in the world (https://marketingland.com/move-millennials-gen-z-now-largest…).

Snap is also just getting started with monetizing its user base. Their blended ARPU is only $2.12 and compare this to Facebook’s blended ARPU of $4.01 in Q3 2016 which has now grown to $7.26 in Q3 2019 (81% growth in 3 years). Facebook’s NA ARPU was $15.65 in Q3 2016, $21.20 in Q3 2017, $27.61 in Q3 2018 and now $34.55 in Q3 2019 which is a 121% growth in ARPU in just 3 years. Who knows if Snap will be able to do what Facebook did, but the trends are good and the turnaround story appears to be legitimate. At a 13 EV/S ratio for a company growing 40-50%, I think this is slightly discounted compared to some of the other stocks discussed on this board. Granted, Snap’s GM isn’t as high but it’s hard to say what its potential is.

Finally, I know Pinterest is starting to become more popular on this board and while they are definitely smaller in market cap size and cheaper from an EV/S perspective, their demographic mix, ad formats and advertising clientele (mostly e-commerce from my understanding) are significantly smaller in my opinion than Snap’s which could limit their growth potential relative to Snap’s.

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Updates from last night -


DAUs
	Q1	Q2	Q3	Q4
2019	190	203	210	218
2020	229	238	249M -- Up 18% YoY, Avg.  

Revenue
$678,668 compared to $446,199 up 52%

ARPU - North America
	Q1	Q2	Q3	Q4
2018	$2.10	$2.21	$2.62	$3.38
2019	$2.81	$3.14	$3.75   $4.42
2020    $3.57   $3.40   $5.49 - Company suggests FB ad boycott helped here. 

Europe (numbers also trending in right direction?)
	Q1	Q2	Q3	Q4
2019		$0.95   $1.05   $1.37 
2020    $1.09   $1.10   $1.43

This is one I started a ‘just watching’ position some time back. I doubled that to a ‘test’ position after last quarter. This quarter looks good to me (but I am a Saul neophyte) so there are things I am probably still missing. I couldn’t find ‘gross’ margin, and the ebitda margin appears to fluctuate a lot.

To me, as as noob, I would now double to up my position into my lowest conviction size. Going to see if the 25% jump pre market holds though, as I rarely buy during hype.

Finally, I know Pinterest is starting to become more popular on this board and while they are definitely smaller in market cap size and cheaper from an EV/S perspective, their demographic mix, ad formats and advertising clientele (mostly e-commerce from my understanding) are significantly smaller in my opinion than Snap’s which could limit their growth potential relative to Snap’s.

I missed on SNAP but own significant positions in both PINS and FB. I almost pulled the trigger on SNAP before earnings but decided I already had enough investment in social media. I am bullish on SNAP but reluctant to buy at the current multiple. But I am more bullish on PINS and disagree on the above points. PINS appeals to a wealthier clientele whereas SNAP seems most popular among teens.

https://www.fool.com/premium/coverage/investing/2020/10/09/u…

While this bodes well for the future of SNAP, I see PINS appealing to this crowd as they mature. I don’t see any significant limit to their potential. PINS also is increasingly tied into ecommerce, seemingly more so than SNAP. But I see this as a developing opportunity for SNAP as well. As the following link shows, they are moving in that direction.

https://www.mediapost.com/publications/article/352921/snap-s….

As I posted a couple months ago when it was in the low 30’s, PINS current trajectory is bullish over the longer term. As SNAP shows however, there are opportunities developing in this niche which likely favor more than one winner.

6 Likes

SNAP came on my radar screen earlier this year when I read this article in Fast Company that named it the world’s most innovative company: https://www.fastcompany.com/90457684/snap-most-innovative-co…

Seems like the CEO learned from his past mistakes and is pushing the company heavily into augmented reality.

2 Likes

End of 2020 update -

Growth across the board in numbers. Too many application improvements listed on slides to document here, so still innovating. After great numbers yesterday, the stock is down. Probably going to add a bit more and move this up in my conviction commitments.


DAU's	(Daily active users)			
	Q1	Q2	Q3	Q4
2018	191	188	186	186
2019	190	203	210	218
2020	229	238	249	265

Revenue 							
	Q1	Q2	Q3	Q4	Annual $B	Net $M	
2018	231	262	298	390	1.181		
2019	320	388	446	560	1.715	        -1.033	
2020	462	454	679	911	2.506	        -0.944	

Gross Margin %				
	Q1	Q2	Q3	Q4
2018	17	30	36	48
2019	39	46	51	56
2020	47	47	58	59

Global ARPU 	(Average revenue per user)			
	Q1	Q2	Q3	Q4
2018	1.21	1.4	1.6	2.09
2019	1.68	1.91	2.12	2.58
2020	2.02	1.91	2.73	3.44

Management says this for next year - “our guidance range is for year-over-year revenue growth of 56 percent to 60 percent”

One point from the slide deck that really stood out to me was - “Total daily time spent by Snapchatters over the age of 35 engaging with Shows and publisher content increased by more than 30% year-over-year”. I like this as it shows a widening audience base.

Lastly, I was prompted back into this thread (and risking Saul board humiliation) because I realized I was watching Ryan Reynolds doing and actual SHOW on Snapchat. ((I was watching through the post on Youtube, but still…actual content.)) It seems that SNAP has a lot of content way beyond just kids sending augmented photos to each other.

5 Likes

Q1 of 2021 appears to be pretty good and the company is showing good innovation to grow and provide advertisers with new tools. Again, the Ryan Reynolds thing seems to be knocking it out of the park with over 20million views. They have also launched an original content show in India called “phone swap”?

https://snap.com/en-US

DAU's	(Daily active users)						
	Q1	Q2	Q3	Q4			
2018	191	188	186	186			
2019	190	203	210	218			
2020	229	238	249	265			
2021	280						
							
							
Revenue 							
	Q1	Q2	Q3	Q4	Annual $B	Net $M	
2018	231	262	298	390	1.181		
2019	320	388	446	560	1.715	-1.033	
2020	462	454	679	911	2.506	-0.944	
2021	770						

Largest first quarter across all regions of world

Gross Margin %							
	Q1	Q2	Q3	Q4			
2018	17	30	36	48			
2019	39	46	51	56			
2020	47	47	58	59			
2021	47						

This seems concerning, but maybe since they increased spend in all categories it isn’t?

Global ARPU 	(Average revenue per user)						
	Q1	Q2	Q3	Q4			
2018	1.21	1.4	1.6	2.09			
2019	1.68	1.91	2.12	2.58			
2020	2.02	1.91	2.73	3.44			
2021	2.74						

Down sequentially, but again largest first quarter, seems to be a pattern

Some news items from this report:
Original content seems to be working, Ryan Doesn’t Know watched by 20 million viewers. (FYI – I have loved these bits but I have watched them on youtube or other places, so the content is good enough to get out into the world.)

Sponsored lens appear to be a thing. Gives advertisers the ability to augment a user’s reality by placing them in a scene with the products. Gucci, North Face, American Eagle,

Acquisition of Fit Analytics to provide sizing technology as part of tools for retailers. (This seems good!)

4 Likes

SNAP delivered solid numbers… guided y/y growth 80% to 85% after accounting for some potential headwinds due to IoS changes…
Strong free cash flow…

SNAP seems to be out-innovating most of the other social networks… I am not well versed (not a user really… but i am not a target market!) but their offering looks to be overlapping Instagram, YouTube, TikTok, WhatsApp and more… all in one app.

What is really impressive is their ability to enable advertisement palpable and not irritant to their audience… and may be even convert into utility with AR camera… proof of this is in growing ARPU while advertisers find that “cost per action” is reducing… IMO, this is very powerful trend.

One caution I found is on FCF - of the $131M FCF, " approximately $75 million improvement in net working capital"… which is not very repeatable… so I would not get carried away on FCF just yet… although I dont see TTM FCF of -ve single digit to be any major issue.

Someone above mentioned gross margin concern. I believe this is partly due to seasonal pattern… 1st quarter being the lightest quarter of the year… in the past, their revenue and gross margins have sequentially improved each of the 2nd, 3rd and 4th quarter.

BTW - Digital advertisement seems to be a good rider on reopening / growing economy… SNAP has proven that… ROKU, PINS, TTD, PUBM and MGNI are other few hyper growth names in this space. While ZM and PTON etc consolidates their business this year after pandemic sugar high, these digital ads companies should keep delivering strong sequential growth this year.

7 Likes

More updates on SNAP! I think this is a huge advantage for them, all SNAP creators have access to all of Universal Music’s library?

https://newsroom.snap.com/snapsounds-universalmusicgroup

I still have this as one of my second highest conviction stocks based on numbers and what I have learned here. So, let me know if I am missing something.

1 Like

Snap released Q2 earnings this evening and wow, did they blow it out of the water!


Revenue
	Q1	Q2	Q3	Q4	Total Revenue
2016	39.0	72.0	128.0	166.0	405.0
2017	150.0	181.9	208.4	286.0	826.3
2018	231.0	262.0	298.0	390.0	1,181.0
2019	320.0	388.0	446.0	561.0	1,715.0
2020	462.5	454.0	679.0	911.3	2,506.8
2021    769.6   **982.1**  1,086*


% YoY
        Q1	Q2	Q3	Q4	
2017	284.6%	152.7%	62.8%	72.3%
2018	54.0%	44.0%	43.0%	36.4%
2019	38.5%	48.1%	49.7%	43.8%
2020	44.5%	17.0%	52.2%	62.4%
2021	66.4%	**116.3%**  60%*

  • Guidance

They guided for 85% growth and they finished at 113%!


DAUs
	Q1	Q2	Q3	Q4
2019	190	203	210	218
2020	229	238	249	265
2021	280	293			


DAUs % YoY
	Q1	Q2	Q3	Q4
2019		7.98%	12.90%	17.20%
2020	20.53%	17.24%	18.57%	21.56%
2021	22.27%	23.11%		


ARPU
	Q1	Q2	Q3	Q4
2017	$0.90	$1.05	$1.17	$1.53
2018	$1.21	$1.40	$1.60	$2.09
2019	$1.68	$1.91	$2.12	$2.58
2020	$2.02	$1.91	$2.73	$3.44
2021	$2.74	**$3.35**

		
ARPU % YoY	
	Q1	Q2	Q3	Q4
2018	34.44%	33.33%	36.75%	36.60%
2019	38.84%	36.43%	32.50%	23.44%
2020	20.24%	0.00%	28.77%	33.33%
2021	35.64%	**75.39%**

This is a company that has shown huge acceleration in revenue largely due to a HUGE engagement in their platform as well as still a ton of opportunity to increase ad load which ultimately means higher CPMs and thus ARPU. Their CEO at an investor day conference believes Snap can generate 50%+ revenue growth for the next several years! (https://variety.com/2021/digital/news/snap-50-percent-annual…)

Given their huge revenue growth, they are seeing some significant operating leverage and have been profitable a few times in the past few quarters. Their cash burn is slowing down and last quarter they achieved positive FCF and their FCF margins are improving YoY.

For those that haven’t used Snapchat, the ad formats are incredible and are highly engaging which can explain why advertisers are flocking to their platform. Not to mention Snap’s core demographic are Gen-Z and millennials which are quickly becoming the biggest generation with a lot of disposable income. Moreover, advertising on Snapchat is way cheaper than Facebook, so that’s incredibly attractive to advertisers given advertising unit economics.

This is a company that still has a ton of tailwinds given how their app is used for both messaging and general engagement. They are also still pretty early innings when it comes to monetizing their platform. Their NA ARPU has increased to $7.37 which is a 117% increase YoY and has been accelerating for 5quarters in a row. Their fastest-growing DAU segment, “Rest of World” is also finally starting to see ARPU growth after COVID likely took down a lot of advertisers last year.

Compared to the other social media platforms and digital advertising platforms (i.e. Trade Desk, Magnite, Pubmatic, etc.) out there, Snap has a unique set of ad formats for their advertisers and based off the past 5 quarters, will likely continue to take share from incumbents especially given their huge share of voice in the gen-z/millennial target audience.

39 Likes

RunnerGuy! You’re back on this thread. I totally stole your OG formatting layout because it made sense to me.

A couple of updates from the slide deck that seem like positives to me…

Their original content work is still growing…a lot:
We launched a record 177 new international Discover Channels, including 36 in the UK and 24 in India, one of which is a partnership with Sony Pictures Network to launch five Shows.

Content creators can generate income with new monetization, which should draw more creators:
We announced new monetization opportunities for Spotlight Creators through Gifting with Snap Tokens, enabling Creators to build personal connections with their fans.

Some big names (and MF Recs) in the new partnership area: Disney, Bumble, and Unity.

And one that stands out as a way to lock in advertisers:
We introduced API Lenses, which enables businesses to automatically import up-to-date product inventory into AR Lenses without additional work.

I got a bit nervous this past quarter. Mostly it was just because this stock did what it always does…goes a bit flat for a couple months as people forget about it. Unfortunately that means I let an options call get away from me and I was assigned at $55. Take that as example why they are not discussed here…sigh. I failed Saul, forgive me please.

Anyway, I had recommitted since then and SNAP is again a pretty big holding of mine.

1 Like

I wrote up $SNAP on Twitter after April earnings.

Much of what you have begun to discuss here on the Saul Board about $SNAP can be found with links from this thread, starting around Tweet #10. I hope these links accelerate your due diligence:

https://twitter.com/peregreine/status/1385595063170961414

6 Likes
*Not to mention Snap's core demographic are Gen-Z and millennials which are quickly becoming the biggest generation with a lot of disposable income. Moreover, advertising on Snapchat is way cheaper than Facebook, so that's incredibly attractive to advertisers given advertising unit economics.*

Just yesterday I took my 13-year-old to get their first phone. As we were driving away from the store, the excitement could barely be contained as my ears took in the list of apps that would be first to be downloaded once we got home to the comfort of wi-fi (no data plans for any of us at this time): Discord, Instagram, Snapchat, PixArt… I said, “What about Facebook?” and the response was “Dad, Facebook is for old people, like Millennials.” Now, I don’t know whether a 13-year-old is Gen Z, or even how long a generation is supposed to be anymore now that “echo boomers” or “Generation Ten since the American Revolution” got mis-applied as ‘Generation Ecks’, but it took me back to my decision to not invest in Facebook around the time it went public. Probably a mistake in hindsight, but in addition to my concerns about regulations and how the world would view not only privacy, I remember thinking, “TMF has taught me a lot about disruption, and it seems to be happening faster than ever. Is this company going to be on top in 3-5 years?”

Their fastest-growing DAU segment, “Rest of World” is also finally starting to see ARPU growth

Sidebar: This metric is why I knew Netflix would be huge when I first invested around… $6 I think, split adjusted. Sold that, then got back in for good at $9 and change with a few adds since.

Compared to the other social media platforms and digital advertising platforms (i.e. Trade Desk, Magnite, Pubmatic, etc.) out there

This is the first time I’ve seen this comparison made. I own all three of those, but aren’t they are ad brokers rather than content platforms/ad-displayers. I see that there’s space here to innovate in ‘ad format’ but I hadn’t thought of it as a differentiator. If you or anyone else can elaborate on this advantage, that would be keen, because I agree, SNAP is looking great right now.

-n8 (no position in SNAP)
(oh, and it turns out Facebook was pre-loaded anyway. T-Mobile phone.)

12 Likes