EQUITY REPORT 09.09.2021 | SNAP INC

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SNAP INC : BEATS EXPECTATIONS WITH STRONG REVENUE AND DAILY ACTIVE USERS GROWTH

 

 

Based in California, Snap Inc operates as a camera company internationally. The company offers Snapchat, a camera application that enable its users to communicate through short videos and images.

SNAP revenues were up by 46% in FY20 to $2.5 Bn. Through its camera-app Snapchat and features that can be accessible for free which includes communication (text, image, and video messaging), Stories are the main drivers of user engagement as the app account for 265 million daily active users and in addition at the same time attracting advertisers via its Snap Ads platform (similar to users Stories),

Overall, besides negative earnings, SNAP has made significant improvement in terms of operating costs management coupled with significant business activity growth over the years.

 

 

 

Another record breaking year and consecutive revenue 40% growth for Snap Inc. Lockdowns and self distiancing policies have accelerated the transition of many businesses online and the way they market their products and services to reach their customers via existing and essential communication channels such as social media platforms, which gather each day billion active users (DAUs).

This year, results were strong. In Q2-2021, SNAP achieved $911 M in net sales, up 116% y/y  and cumulated 6-month sales of $1.75 Bn (+91% growth y/y), all highlighted by a solid increase in active users over the period, adding another 55 million DAUs in the quarter, cumulating to a new record of 293 DAUs worldwide, especially growing its rest of the word (ROW) user base by investing efficiently in its Snapchat app by implementing local contents and in addition improved its language support: consequently, SNAP saw a major boost in users in emerging countries such as India (+200% in DAUs).

Coupled with SNAP expansion in ROW, the camera company still manage to connect with its existing user base (Millenials, Gen Z) in Europe and North America with its Snapchat original shows : US election coverage, Wave TV, Will From Home starring Will Smith which gathered over 10 M viewers on average.

 

 

With the large increase in DAUs as well as advetising revenue soared to hit record in FY20, but still in terms of cash liquidity it has fallen ever since, as operating activities remained weak over the years, mainly due to accumulated negative earnings.

Conversely, investments remained constant, especially acqusitions, over $247 M spent since 2018 : in 2020 with the acquisition of AI Factory for $166 M, a computer vision startup that developed its new Cameos selfie-based video feature.

Also, to fund these investments, Snap inc issues each year since 2018 new debt $1 Bn on average. These funds are necessary for the company to stay afloat (due to its negative earnings) and to accelerate investment in its growth and target innovative tech startups that will help SNAP to develop and implement new innovative features that will keep its users to come back, in order to foresee first positive earnings in the next years.

 

YTD, the stock gained 49.69%. The share price (08/09/2021) closed at $74.21.

Forecast – 2021 full year sales will definitely follow its past FY2020 results and can expect at least 40-45% growth as SNAP to reach $4 Bn in total sales and will be driven by the rise of DAUs reaching over 320 M DAUs at the end of 2021 thanks to the improvements and implementation of new features, fueled by further tech startups acquisitions with the hope of targetting older population besides Millenials and Gen Z.

In the upcoming years, SNAP can expect its first positive earnings driven by strong advertising revenue and its ability to manage costs effectively, as its constant spending in R&D will definitely bear fruits.

 

 

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