Snap Won’t Lose Its Luster

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Just how many PG-rated Snaps can a person take stuck in their bedroom, AB Bernstein analyst Mark Shmulik asked in a first quarter preview.

Many, it seems. Snapchat parent

Snap Inc.


SNAP -2.14%

kicked off social media’s first-quarter earnings season Thursday with a bright filter, reporting users and sales above Wall Street’s estimates. Continuing to surprise investors to the upside is an impressive feat for a company whose share price has more than tripled over the past year.

But given the stock’s recent run, some analysts have questioned how much the company can continue to step up its valuation, even as its homebound users start to step out. Following its report, Snap shares fell briefly before rising more than 4% in after-hours trading as investors tried to wager on just how much brighter Snap can shine.

AB Bernstein’s Mr. Shmulik is bullish on Snap’s prospects as the world opens up, noting that, unlike competitors

Pinterest

and

Twitter,

Snapchat was designed to work best “in the wild.” The Pinterest comparison is particularly important for investors looking to bet on this year’s winner in the social media space: Over the past 12 months, Pinterest and Snap have logged near tandem gains. But performance for the remainder of the year will be driven by advertisers’ faith that soaring usage can continue on the respective platforms.

Here, Snap’s commentary was encouraging. The company said it saw a spike in story postings and Snap Map engagement in late February as things began to open up in the U.S. It also said it logged a rise in new friendships and bi-directional communication as users began to socialize more in larger groups. Another good sign: On Thursday’s earnings call, Snap said the amount of money committed upfront for this year from advertisers is already more than 50% higher than the total upfront commitments made last year. Investors will have to wait for Pinterest’s report Tuesday for color on how its own usage has fared over the past few months.

Engagement on Snapchat, at least, is high: There are now 280 million people using Snap’s platform every day, and the company has previously said its average user opens its app 30 times a day. That has helped to draw advertisers to the platform to take advantage of a price per impression that has been historically low versus its competitors, according to the company.

Snap said revenue in the first quarter grew 66% from a year earlier—well above even the high end of its guidance, which had baked in a few weeks of Apple’s iOS changes that would have hit revenue but didn’t come to fruition in the period. Even with those changes pushed out, Snap is forecasting 83% year-on-year growth at the midpoint of its guidance for the second quarter, slightly above the Street.

In February, the company said it was in a position to deliver 50% annual revenue growth for multiple years. Its Snap Map in particular is a growing opportunity for the company with 250 million people using it monthly to access over 35 million business listings with information like store hours and reviews. That product was launched 2017 but is still a nascent advertising opportunity for the company.

Also positively, Snap said on Thursday its Android user base has now grown larger than those accessing Snapchat on iOS. That implies upside opportunity as Android is more popular overseas, and under 30% of Snap’s revenue came outside North America in the first quarter. Even in the U.S. itself, Snap has said it reaches nearly 50% of smartphones, but has just under 2% of the digital ad market.

Investors are ready to see some action shots.

Write to Laura Forman at laura.forman@wsj.com

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