Shares of social media company, Snap Inc. (NYSE: SNAP) jumped to a record high, bringing its market cap more than $100 billion. This came after the social media company forecast revenue growth of 50% or more for several years during the company’s investor day.
“Via the work on our self-serve ad platform, we’re in a position to drive multiple years of 50% plus revenue growth,” Peter Sellis, Snap’s Senior Director of Ad products.
Prior to that news, SNAP stock was down about 7% alongside the broader market, hovering near $58 per share. Since the announcement, you could guess that investors certainly loved the aggressive sales projection. That’s because Snap’s stock rose right after that. It closed the day 11% higher to reach $70.45 per share. So here begs the question, was Snap’s Investor Day event really that good that it managed to send the stock flying amid a bloodbath in the stock market?
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Considering Snap has only less than 2% share of the U.S. digital ad market, it doesn’t take an expert to know that there’s a huge growth runway for the company. As one of the top social media platforms, Snap is naturally a place where a lot of millennials do a lot of things. And don’t forget Snap is a digital advertising company. This implies that Snap could monetize its users by selling highly effective ads to those consumers.
With the ability to reach nearly half of U.S. smartphone users, you can’t stop investors from being bullish with the growth potential, can you? In recent years, the company has made some major advancements to expand the functionality of its ad platform. A few of those advancements include Dynamic Ads, Trending on Snap, Local Ads, Place Listings, just to name a few. From such enhancements of its ad platform functionality, this has led to a surge in Average Revenue Per User (ARPU) rates. For the uninitiated, Snap’s ARPU has increased by seventeenfold since 2015.
It’s important to note that the company’s cost structure won’t change much going forward. Hence, should this trend persist, you can expect its ARPU rates to skyrocket in the future. What’s more, Snap is in a prime position to repeat its success with U.S. Millennials and Gen Z users abroad. That presents a vastly larger opportunity set for the company and represents an upside for SNAP stock.
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Earlier this month, Snap reported strong fourth-quarter earnings which topped Wall Street’s expectations on all metrics. Be it users, revenues, or profits, the company appears to be firing on all cylinders. Revenue grew 62% from a year ago to $911 million. That was $56 million higher than estimates.
It was also the company’s highest quarterly growth in 3 years. Besides, daily active users increased by 22% to 265 million. That was not only higher than the previous quarter’s growth but also exceeded the company’s guidance of 18%. As a result, SNAP stock popped to all-time highs.Source: TD Ameritrade TOS
“Our team has worked tirelessly to help people stay close with their friends and family even while they are physically apart, and we’re proud of the strong results we delivered for our advertising partners this quarter and over the full year. We delivered our first full year of Adjusted EBITDA profitability and, as we look towards the future, we’re excited to build on our investments in augmented reality, mapping, and content to drive our ongoing growth,” – CEO Evan Spiegel
From a social media underdog to a rocket ship in social media networks, Snapchat is being driven by relentless innovation. Thus, as the most innovative player in a hyper-growth industry, Snap projects to sustain robust growth momentum for a lot longer. There is no doubt that Snap is still Gen Z’s favorite platform. And that is putting it ahead of TikTok and Instagram. Snapchat is also expanding its augmented reality (AR) ecosystem with its Snap Kit and its in-app video games through Snap Games.
“It is augmented reality that is driving our future..”We are doubling down on this strategy in 2021.” – CEO Evan Spiegel
Apart from that AR ecosystem, Snap also launched Snap Games two years ago. It is a platform for in-app video games, and it is growing exponentially. Last June, the company declared that over 100 million users have played its games. Right now, that number likely rose throughout the pandemic as developers rolled out more games. As the games encourage users to use their own Bitmojis and interact with other users, it could pull in more users. Besides, there is a good chance that the expansion of the ecosystem may increase Snap’s ARPU. This suggests that Snap has got a few tricks up its sleeve when it comes to attracting new users.
By and large, Snapchat has been showing strong growth in terms of viewers. It is also gaining a lot of overseas users. Now, with its upbeat forecast largely due to work on its self-serve ad platform, it makes even more sense for investors that are looking for growth stocks to include SNAP Stock on their watchlist. Also, Snap appears to be more insulated from the political and regulatory headwinds compared to its tech peers. To top it all off, its growth potential in video games and AR could power SNAP stock to greater heights in the long run.
If you are looking for a company with a strong track record of growth, it appears to me that SNAP stock is a very attractive option indeed. All in all, the company is expanding its portfolio while bolstering its current offerings. At a market cap of slightly over $100 billion, it is certainly much smaller than its bigger tech rivals. Does that mean that there could be way more upside to SNAP stock? It seems there could indeed be a compelling case here.