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.