Snap: Fundamental Inertia Will Send This Rocket Higher

seekingalpha2021-05-03

Summary SNAP delivered its 1Q report on Thursday, April 22nd. The results were impressive to say the least. We saw across the board beats on almost every front. SNAP's core monetization engine ...

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请对我善良点
2021-05-03
请对我善良点
Please like and comment [開心] [開心]
逢場作戲又一日
2021-05-03
逢場作戲又一日
Good move SNAP
RisingV
2021-05-03
RisingV
Wow
NicSim
2021-05-03
NicSim
Okay sell put
- MasterStonker:
  yeah
Sashiimi
2021-05-03
Sashiimi
Please like and comment for rewards!
- Jvalour:
  Like and comment back! Thanks
- CathayWood:
  comment
- Sashiimi:
  Thanks!
Qianze
2021-05-03
Qianze
Wow

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We saw across the board beats on almost every front.\nSNAP's core monetization engine ...</p>\n\n<a href=\"https://seekingalpha.com/article/4423687-snap-earnings-fundamental-inertia-will-send-this-rocket-higher\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Snap: Fundamental Inertia Will Send This Rocket Higher</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSnap: Fundamental Inertia Will Send This Rocket Higher\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 16:12 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423687-snap-earnings-fundamental-inertia-will-send-this-rocket-higher><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nSNAP delivered its 1Q report on Thursday, April 22nd. The results were impressive to say the least. We saw across the board beats on almost every front.\nSNAP's core monetization engine ...</p>\n\n<a href=\"https://seekingalpha.com/article/4423687-snap-earnings-fundamental-inertia-will-send-this-rocket-higher\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SNAP","symbol_name":"Snap Inc","start_time":0,"source_url":"https://seekingalpha.com/article/4423687-snap-earnings-fundamental-inertia-will-send-this-rocket-higher","article_id":"1139118247","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1139118247","pubTimestamp":1620029533,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nSNAP delivered its 1Q report on Thursday, April 22nd. The results were impressive to say th","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SNAP":"Snap Inc"},"translate_title":"SNAP：基本惯性会把这枚火箭送得更高","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SNAP":0.9},"content_text":"Summary\n\nSNAP delivered its 1Q report on Thursday, April 22nd. The results were impressive to say the least. We saw across the board beats on almost every front.\nSNAP's core monetization engine remains the Discover part of the platform, the least sticky and least optimal part of the platform long-term for advertisers.\nExpect innovation to unlock advertiser dollars at SNAP. SNAP still has monetization avenues to move towards in: Stories, Maps, AR, Spotlight and more.\nOn top of all this, user growth is showing absolutely no signs of slowing down, a quite promising trend considering the street has never viewed SNAP as the real reopening play that it is.\nReiterating Buy rating. PT remains $100.\n\nPhoto by Drew Angerer/Getty Images News via Getty Images\nMy Grade of Snap's Q1 Report: A\nSomething I intend to start doing more frequently during earnings season is grading the quarterly reports of the companies I cover. So, we'll start with Snap (NYSE:SNAP). I gave Snap an\"A\"for their 1Q report. Let's break down the print in more detail.\n\nEPS:$0.00 actual vs. -$0.06 expected\nRevenue:$770M actual vs. $743.8M expected\nDAUs:280M actual vs. 274.62M expected\nARPU:$2.74 actual vs. $2.72 expected\nQ2 Rev. Guide:$830M (midpoint) actual vs. $826.99M expected\n\nThese are just the high level numbers, I'll be going more in-depth later on. That said, what a quarter. When Snap reported its 4Q results a few months ago, investors were spooked when their adjusted EBITDA guide came up short of expectations. The company explained their motivations to achieve critical mass of the Spotlight product, which would be quite costly. Fast forward to now, and we see that while Snap did spend big on Spotlight, they were able to still get to breakeven. Talk about underpromising and overdelivering. This beat was likely the most impressive part of Snap's report as it proved that the company could take strides towards investing in themselves while also being fiscally responsible.\nThe second best part of this quarter was likely the stunning engagement the platform saw. Snap originally guided ~275 million DAUs for Q1 when they printed their Q4 numbers. This guidance seemed to support the narrative that Snap was witnessing somewhat of a deceleration in user growth as the world economy opened back up. This Q1 report shows quite the opposite trend. Snap added 15 million users sequentially in Q1, versus the 16 million added in Q4. Snap isn't really slowing down on the user addition in spite of the ongoing reopening. All major geographies grew sequentially (North America, Europe, Rest of World) and Android became the predominant Snapchat operating system for the first time in company history.\nSnap's ARPU also beat expectations narrowly as Apple's (NASDAQ:AAPL) IDFA operating system changes were pushed into Q2. While this is a risk (more on that later), it didn't materialize in Q1, which allowed for some upside to slightly depressed expectations.\nAnd finally, Snap delivered slightly better than expected revenue guidance in Q2. Something to note is that over the last several quarters, Snap appears to have placed deliberately conservative guidance, where they continuously blow out the top-end of their guidance. This trend of underpromising and overdelivering has led to large beats relative to expectations. This is why in spite of the small nature of the beat on Q2 revenue guidance, it's important we look at the top end of the $820-840M revenue guidance as therealbar.\nOverall, Snap just didn't miss a beat this quarter. While it wasn't necessarily a blockbuster quarter, they beat on every single level, with some relatively large beats (EPS and DAU) that drove sentiment coming out of the report. Overall, I'm giving this quarter a grade of an\"A\".\nConference Call Breakdown\nWithout further ado, let's dive straight into Snap's Q1 earnings call. To be clear, I'm not going to go over every point, just the points that stuck out to me personally and deemed incredibly relevant to analysis of the business.\n\nWe launched Spotlight in India, Mexico, and Brazil during Q1, and are now live in over a dozen countries, reaching more than 125 million monthly active users on Spotlight in March. - Evan Spiegel, CEO\n\nThe key takeaway from this remark is simple: Snapchat's high spending levels to build out critical mass have led to ever-increasing levels of engagement on the Spotlight section of the platform. Last quarter, the number was 100 million MAUs. Now in Q1 we're already at 125 million. Spotlight is taking off.\n\nWe grew revenue 66 % year-over-year to $770 million, grew daily active users 22% year-over-year to 280 million, and generated $126 million in free cash flow. - Evan Spiegel, CEO\n\nThis note is less important, but it highlights how strong Snap has turned around. 66% revenue growth against a normal Q1 comp is downright insane. This would put Snap in the top tier of high valuation/high growth software stocks. In addition, Snap, for the first time in the company's history, generated cash rather than burning it. This shows that Snap can be both a high growth name, and a fiscally responsible company pushing towards profitability. $126 million in FCF definitely doesn't hurt the story here.\n\nMore advertisers were active on our platform than ever as our active advertiser base approximately doubled year-over-year in Q1. We have a large opportunity to gain share of the global digital ad market, which is $340 billion and growing. - Jeremi Gorman\n\nAny good software stock (more on this later) needs to have a large addressable market. Management nails that here by mentioning that (a.) they have a massive $340 billion market, and that (b.) they're making inroads on taking share of that market, with advertisers more thandoublingy/y.\n\nThe fact that these changes are coming later than we anticipated has provided additional time to adopt Apple's SKAdNetwork and begin implementing and testing with our partners. Advertisers that represent a majority of our direct response advertising revenue have successfully implemented SKAdnetwork for their Snap campaigns. - Jeremi Gorman\n\nOne of the biggest headline risks to the Snap bull case has been the coming IDFA changes made by Apple that are set to roll out this quarter. Essentially, Apple is tweaking its iOS mobile operating system to allow users to have more control over where the data goes and who collects it. This change is expected to have a negative impact on ad relevance and targeting. Fortunately, Snap seems to be working through any potential headwinds with advertisers right now, prior to the changes occurring. This is calming for me as it assuages any temporary fears I have over IDFA changes being a material headwind to revenue.\n\nAs indicated during our recent Investor Day, we are accelerating our investments in sales and sales support beyond North America in 2021 in order to capture our global ARPU opportunity faster in the years ahead. Average eCPM increased 67% year-over-year in Q1. Rising eCPM relative to the prior year is driven by a combination of improved optimization capabilities within our auction, a mix shift toward relatively higher eCPM products such as commercials, as well as a mix shift toward relatively higher eCPM regions such as North America.\n\n\nWhile our topline has benefited from year-over-year growth in eCPM in recent quarters, the cost per action for our advertising partners declined sequentially for three of our top four goal-based bidding objectives in Q1, as we continue to enhance our optimization capabilities in order to use our inventory more efficiently. Consequently, we believe that we will be able to deliver attractive returns on ad spend to our advertising partners as eCPM grows over the long term.\n\n\nIn addition, the ongoing growth of our community and strong engagement in areas of our application that we have not yet begun to monetize, provide significant room to expand our inventory and expand our long-term ARPU opportunity over time. - Derek Andersen\n\nNow this is a long segment from the call but try to bear with me here. If you haven't seen my prior breakdown of Snap, clickherefor my analysis of Snap's Investor Day among other things. The first thing to point out in this comment is North America, the geography that has been driving monetization growth, will merely be the first place Snap gets its feet wet with its go to market strategy. Europe and ROW are next. Once we see North America begin to stall (which we shouldn't see for a while), Snap will be ready to scale internationally. The next thing management points out is that in spite of rising eCPMs that have enabled robust ARPU and overall revenue growth, the internal cost to advertise has actually gottenmoreefficient for advertisers. Snap's believes this win-win combo will continue long term. In addition, untapped parts of the Snapchat product (think Maps, Communication, and Spotlight) will drive eCPMs higher and expand the company's ARPU long-term.\n\nWe continue to make significant progress against our goal of driving down our underlying infrastructure unit costs over time. In Q1, our infrastructure costs per DAU benefited from several factors, with the most significant being efficiency improvements delivered by our engineering teams, including the re-architecture of our messaging platform that we mentioned during our recent Investor Day. In addition, we continued to benefit in Q1 from negotiated rate improvements for several of our cloud services.\n\n\nLastly, the acceleration in growth of our community has been a modest benefit to infrastructure cost per DAU in recent quarters as new users tend to have lower initial marginal cloud infrastructure costs relative to longer tenured Snapchatters. These factors combined to deliver the lowest infrastructure costs per DAU we have reported as a public company at just $0.62 in Q1, down from $0.69 in the prior quarter and $0.71 in the prior year.\n\n\nOn the content side, we continue to invest to support the launch of Spotlight in Q1. And this contributed approximately $90 million to our cost of revenue in the quarter, representing a 12 percentage point headwind to gross margin expansion in the quarter. We are highly encouraged by the early returns from our investments in Spotlight, with this new platform reaching over 125 million monthly active users in March. While it is still very early for this new platform, we are excited about the potential for Spotlight to further expand our monetization opportunity in the future. - Derek Andersen\n\nAgain, another long quote so bear with me here. First of all, Snap's gross margin trend is proof that headline numbers are just that. Headline numbers. We have to look under the hood at what Snap is really doing with gross margins. Infrastructure costs, since inception, have been the bread and butter of Snap's gross costs. While gross margin expansion has tailed off recently (because of Spotlight, more on that later), it isn't because users are getting too expensive to onboard or keep on platform. Snap's engineering team has made great progress in lowering internal hosting and infrastructure costs with infrastructure expense per DAU down ~13% Y/Y. Essentially, what this means is Snapchat has gotten very efficient infrastructure spending and this reduction in infrastructure spend has been (and will be) a tailwind for gross margins going forward. Remember how gross margins were only up ~100bps y/y? Well, backing out Spotlight expenses (which will be phased out over time), Snap's gross margins were actually closer to ~60% in Q1. This just goes to show Snap's newfound efficiency in innovating while staying fiscally disciplined. This expenditure has paid off, with 125 million MAUs on Spotlightalreadyand plenty of room for future monetization.\n\nAs we look forward to Q2, we estimate that DAU will grow at a rate consistent with the prior quarter, or approximately 22% year-over-year to reach $290 million in Q2. On the monetization side, we are cautiously optimistic that the operating environment will continue to improve. Our guidance range is for revenue of $820 million to $840 million, implying year-over-year revenue growth of approximately 80% to 85% in Q2. This range reflects our best current estimate of the potential impact of anticipated disruptions associated with the iOS platform changes.\n\n\nIt is not clear yet what the longer-term impact of the iOS platform changes may be for the top line momentum of our business. And this may not be clear until several months or more after the changes are implemented. Until then, we will remain focused on helping our partners navigate these changes while optimizing return on ad spend across our advertising products and platform.\n\n\nOn the expense side in Q2, we intend to continue to invest in the long-term growth of our business, and we'll continue to support the launch of Spotlight with our $1 million per day creator fund in order to build on the momentum we are seeing with this exciting new platform. While we see a path to adjusted EBITDA breakeven in Q2, we are also cognizant that there are a number of cost drivers for our business, including travel and event-related costs that have been lower over the past year due to COVID-related restrictions. It is likely that these activities will begin to resume in the coming months as restrictions ease and that the related costs will begin to return to our cost structure as a result. Given this, our guidance range is for adjusted EBITDA to be between negative $20 million and breakeven for Q2. - Derek Andersen\n\nOkay so here is the guidance. 80-85% revenue growth y/y. Granted this is against a relatively weak Q2 comp. Nevertheless, this level of growth with scaling cost efficiency is downright impressive. Snap anticipates a slight slowdown in net sequential user adds from ~15 million to ~10 million. To be expected heading into easing lockdowns. In addition, in spite of the continued high spending on Spotlight, Snap is guiding very nicely for its EBITDA trajectory. iOS changes remain a short to medium term risk. And while it is a risk, it is also factored into the guide. If this risk doesn't materialize, I would fully expect Snap to take out the top end of its revenue guidance.\nOne thing I would like to acknowledge here now that I've gone through my biggest points in the prepared remarks is this: I'm not touching on every single thing in this call. Management gives even more color. \n\nSo it was more difficult to kind of perfectly execute this verticalization and specialist in terms of different vertical, measurement specialists or marketing specialists or communication specialists by vertical. But I think what's so exciting about the opportunity is that we now know the playbook. You're seeing it show up in our strong results in North America. And so we are going to replicate it in Europe and the rest of the world and those investments we were talking about to accelerate our growth internationally. - Jeremi Gorman\n\nOne of the key drivers of Snap's results when it comes to ARPU growth in the North American geography has been fleshing out an effective sales team. If you paid close attention to the 1Q print, you might have noticed that ARPU was actually negative y/y in the ROW segment. This has caused a bit of concern, though in this case it is likely because ARPU is a mostly output metric in Snap's developing markets. Nevertheless, Snap now knows the gameplan to effectively scaling up the monetization of their platform domestically. They can begin to implement those types of investments internationally and scale monetization there too.\n\nBut if you get into the second half, those comps are going to look a little bit more like what we saw in Q1. So obviously, they're a little tougher. We feel good about the results we put up in Q1 on relatively tougher comps. - Derek Andersen\n\nThis comment from management relates to a question asked by an analyst on tougher 2H comps. Snap is saying that the back half comps are probably going to look a lot like the Q1 comps. These comps will be a little more difficult than the Q2 comp, since Q2'20 was damaged by Covid's effect on the ad industry. That said, this comment could be insinuating that they are anticipating similar growth in 2H as they saw in Q1.\n\nRight now, what we're really focused on is making the investments in our sales and sales support to build on the momentum. We like what we're seeing on the active advertiser growth. We're liking what we see on the upfront commitments and we're focused on delivering the return on ad spend, investing in our optimization capabilities so that we can deliver return on ad spend for those advertising partners just to continue to build on the momentum we're seeing.\n\n\nLook, while we're excited about the momentum that we're seeing there on the Spotlight side, it's early there. We're really excited about the product and the momentum. In terms of the need to open that up to advertising, I think we continue to be more demand constrained than supply constrained. So, we're going to continue to focus on improving the experience for our Snapchatter community and for creators in the near term, and we've got lots of room to grow the top line in the areas that we're already monetizing today over the near term. Thanks for the question. - Derek Andersen\n\nAgain, another long blurb, but let's break it down. Snap is prioritizing making investments in its sales team to continue building up growth in their advertiser count. This strategy of investing in the sales team has been working in terms of bringing new advertisers in and increasing advertiser commitments. Then, turning to Spotlight, we get a little bit of discouraging/bearish commentary. While management loves the engagement they are seeing on the Spotlight section of the platform, investors should expect Snap to play the long game with this one. Spotlight is definitely intriguing, but do not expect near-term boosts in monetization from this part of the platform. Spotlight will take time to bear any real fruit.\n\nWe are really focused on helping our advertisers make the transition to the best possible measurement and optimization tools smoothly. The change happened later than we expected, which gave us a lot of time to prepare and SKAdNetwork is one part of that. So, we're really pleased to see that advertisers that represent the majority of our direct response revenue have implemented it so far. But we know that there's a lot of work to be done to transition smoothly. - Derek Andersen\n\nAgain, one of Snap's biggest headline risks has been updating their tracking, targeting, and optimization for the IDFA-adjusted era. Snap has had time to work with advertising partners to implement the new tools given to them (by Apple) and work through any air pockets in ad pricing. While we haven't seen these changes come fully into effect yet, meaning there is still an element of uncertainty there, Snap has worked to make the platform advertiser-friendly, and everything seems fine right now.\nOverall it was very hard to not like what Snap had to say this quarter. Everything exceeded expectations, and some IDFA worries were pushed aside, or at least eased. This was a great quarter.\nLong-Term Narrative: Numerous Paths To Hypergrowth and Mega Margins\nShort-term, the story looks great. But let's look at the long-term narrative. That's what's most important after all.\n\nI've broken down the long-term bull case on Snap many times during my tenure here atSeeking Alpha. I've covered the company publicly and privately since its IPO in March of 2017. I've been long, short, and everything in between. I can tell you with confidence, that the narrative has never looked as strong with Snap fundamentally as it does right now.\nThe narrative is years of ~50%+ revenue growth to come, high margins, fiscal responsibility, and eventually, high levels of profitability. Let me break out why this narrative is so plausible, and why the stock, even at today's levels, is enticing.\nLooking At Snap Like a Software Stock\nIn order to better understand the value in Snap, we should look at the business like a SaaS (software as a service) stock. Excluding the last couple of months, SaaS has been one of the biggest outperforming subsectors of the overall tech sector. Software stocks have garnered the highest multiples and frothiest valuations in the world and it can all be boiled down to these points:\n\nTAM (total addressable market)\nA disruptive and leading product (or go to market strategy)\nNumerous levers for high, sustained growth\nHigh long-term margin profile\nRule of 40 (more on that in a bit)\nnarrative optionality (bonus points)\n\nNow, there have been some duds in the software business. That said, the valuations being afforded to software stocks that check these five boxes are among the highest on Wall Street. Just look here.\nData by YCharts\nThese are just a few names in a huge basket of highly valued software stocks that trade at nosebleed valuations. Why do investors hand out such high valuations? It's simple. These companies check all the aforementioned boxes. Snap is no different. Where are they trading though?\nData by YCharts\nThey're trading like a name that is at the middle of this growth pack, not at the front of it. I'm going to make the case for Snap to be at the front of this pack, or at least towards the front. Let's go through the five points (and the sixth bonus) to determine if Snap belongs towards the head, rather than the tail.\nThe first point is TAM. TAM is an acronym for total addressable market. Essentially, a business' TAM is its long-term market opportunity. Snap's TAM is massive, and quickly growing at that. Snap's TAM is among the largest out of all the aforementioned \"software\" stocks. Snap estimates that the global digital advertising market did ~$339 billion in business last year, and is expected to scale towards ~$543 billion by 2024. So, not only is Snap operating in amassivemarket, they're operating in a dynamic market. A market that in and of itself is growing rapidly. Some TAMs are relatively static. Digital advertising is not so. So, Snap checks the first box of having a massive TAM.\nThe second point is having a disruptive product. Having a large market is great, but if you can't capture meaningful market share with a great product, then the size of said market is irrelevant. Fortunately for Snap, they have a great product. The product that they are selling, is the attention span and purchasing decisions of the most influential purchasers in the world: Gen Z and Millennials. Snap has a lock on these users. Why? Because through years of R&D spend and product rollout, Snap has built an ecosystem that is worth more than any one of the app's features. If Facebook copies a key part of Snap's ecosystem, it doesn't really matter anymore. Snap has the loyalty of its users now. More importantly however, they have carved out a niche in advertising. From an ad platform sophistication standpoint, Snap is on par with the top ad platforms (see slide 33), and they continue to invest in innovative ad formats, giving advertisers choice. Lenses, Commercials, Stories, Spotlight. These are all products that Snap will begin advertising against, giving advertisers different choices as to how they want to reach this coveted demographic. Snap has built out a differentiating product for advertisers, now they just need to iterate on it to see the fruits of their labors come out at scale. Snap checks this box exceptionally well.\nThe third point is having numerous growth levers. If the growth runs \"dry\" so to speak in one part, can Snap quickly transition to juicing growth with another aspect of their business? Yes, they absolutely could. You know, the interesting thing is, Snap's Investor Day commentary of numerous years of 50%+ revenue growth is on their current ad product pipeline. This pipeline is mostly their Commercials product on the Discover page and Stories ads. At least, that seems to be the bread and butter of their ad business. Snap hasn't fully tapped into either of these products fully yet, and yet they are able to drive years of 50%+ revenue growth alone? That's unreal, and considering the fact that Snap also has Snap Map, Spotlight, and AR lens ads/experiences, they have more than enough levers to drive growth higher.\n\nFourth is margins. When I talk about long-term margins, I mean both gross margins and operating margins. With gross margins, I can see Snap between 75-90% long-term (5yrs+). Why? The bulk of their long-term COGS will likely come from infrastructure expenses (i.e. hosting and cloud contracts with GCP and AWS). Hosting costs go up not with ad pricing/ARPU, but with engagement. The more a user engages with an app, then theoretically, the more it costs to host, and the more they are charged on their cloud bill. The thing is, if Snap can seriously crank up ARPU, then COGS would fall in line, because COGS doesn't really correlate with ARPU. This could enable incredibly high margins as infrastructure spend stabilizes while ARPU skyrockets. Some may point out Snap's rising content costs when it comes to Spotlight. The important thing to note is, while Snap is investing heavily upfront to develop a critical mass of engagement, once the ball really starts rolling, they can pull back on spend. Why? Because from then on engagement on the Spotlight part of the platform will be organic.\nNow when it comes to operating margins, I expect a premium there as well. Snap will always be a big SG&A spender and R&D spender. Using stock based compensation is a great tool for morale and building the business, especially when it comes to Snap trying to scale its global sales team. This sales team is critical to onboarding new international advertisers and (the holy grail) small business advertisers. Expect SG&A to continue rising over the coming years as Snap expands its attack opportunity. R&D is critical as well. R&D is what spurs innovation, which is what keeps the platform sticky for both users and advertisers. In social media, retention and growth are the key. R&D is necessary to keep both. That being said, I still expect best in class operating margins relative to other social media platforms. Why? Snap lacks content moderation expenses. You see, the thing that has been weighing on the margins of Facebook and Twitter (NYSE:TWTR) in particular has been high expenses relating to moderating content on platform. Snapchat, for the most part, is free of this content. They don't have to worry about the costs associated with building a moderation team or building out content moderation algorithms. This is huge, as the key reason for Facebook's contracting margins has been content moderation. Snap, in lacking these expenses, has an opportunity for even larger margins.\nThe fifth point, tying it all together, is the Rule of 40. For seasoned software investors, the Rule of 40 is a key tool in evaluating how much slack to cut a stock valuation-wise. If you don't know what it is, don't worry I'll explain. The Rule of 40 is simple: Take your revenue growth rate and add it to your cash flow margin (or profit margin). If this net number is above 40%, then investors generally tend to turn a blind eye or at least cut the company some slack valuation wise. Let's run a hypothetical example just so we understand better.\nCompany A has revenue growth of 25%, and a cash flow margin of 5%. Combined, Company A's rev. growth + cf margin is 30%, which is less than the Rule of 40.\nLet's apply this to Snap's numbers as of Q1. Snap saw revenue growth of 66% Y/Y against a fair comp. Their free cash flow margin in Q1 was ~16%. This means Snap more thandoublesthe rule, coming in at 82%, putting them in the top echelon of growth software names.\nAnd finally, the cherry on top, is Snap's optionality. Snap has massive room to expand in the advertising vertical alone, but wait, there's more. On top of the enormous upside of Snap's advertising business, the company has left room for aggressive expansion elsewhere. Whether it be gaming, eCommerce, or augmented reality hardware, Snap has just begun to open doors to more potential markets to juice up long-term growth.\nWith all this said, I am fine with paying almost any multiple on this company's stock because of all the things it has going for it.\nValuation\nThis brings us to my formal valuation of the stock. I value Snap by doing a 2030 buildout of the business, assignment of a fair multiple, and discounting back with WACC (weighted average cost of capital). Let's start with the underlying business assumptions:\n\nDAUs of ~550M\nARPU of $55.38/DAU\nRevenue of~$30.457B\nGross Margin of 83.7%\nOpEx of $10.17B\nTax Rate of 25%\nShare Count (current) of 1.519B\nEPS of$7.57\n\nI have an internal model that I run for the valuation that goes into more depth than just these numbers. That being said, I'm choosing to keep the in-depth model private for now.\nNow, let's choose the multiple. I've been going with a 4% earnings yield, a significant premium to the 10 year bond to reflect the risk-on nature of the asset. Still, 4% EPS yield is a 25x earnings multiple. 25x $7.57 in EPS gets a 2030 exit value of ~$189.17/share.\nFinally, and possibly most importantly, what is the rate at which we discount the 2030 valuation? Interestingly, while the market (growth stocks in particular) has gotten more choppy of late, equity risk premiums have actually trended down. In addition, interest rates, which triggered the drawdown in growth stock valuations have actually been stabilizing lately. All the while, Snap's actual beta has been winding down a bit. I've calculated a discount rate based on a beta of 1.4 (per Infront Analytics) of ~7.5%. So, discounting back by 7.5% per year to YE'2022, we get to a price target of $101.39/share, which I've decided to round down to $100. Therefore, my price target at this time remains $100.\nRisks\nNo stock fully lacks risk. While I believe Snap is a relatively risk-off name, there are some things I want to point out.\n\nshort term valuation remains high\npotential for prolonged IDFA drag\nexecution risk\nneed to take SMB exposure from the bigger competitors\n\nThe first risk is the most pronounced one. While I believe the valuation is more than warranted where it is, I also acknowledge that at ~16x next year's sales, there isn't much margin for error. If things go awry anywhere in the Snap narrative, the valuation has basically no cushion at this point.\nThe next risk is the potential for Apple's iOS changes to have a dragging effect on ARPU over the short to long term. While Snap has done a great job migrating advertisers towards SKAdNetwork, I wouldn't rule anything out yet in terms of ARPU stagnating short-term while advertisers worry about lessened targeting. If IDFA changes do hit Snap's ARPU, then I wouldn't be surprised to see a massive drawdown in the stock, as the valuation (as mentioned earlier) is very high still.\nThe third risk is simply execution. Can Snap execute on their vision for years of 50%+ revenue growth? Well, after a few years of solid results in every facet: user growth, monetization, cost controls, etc., I have my faith in management. That being said, if anything goes awry, then take cover.\nAnd the final risk is an inability to attract SMBs to Snap's advertising platform. Small and medium size businesses are the bread and butter of Facebook's ad revenue. Without high small business exposure, Facebook would not be anywhere close to as big as it is today. Snap has found itself in the difficult position of needing to grab share in these small businesses from Facebook in order to scale revenues. By differentiating their product and giving advertisers access to a coveted demographic, I believe they can take the necessary market share from Facebook to scale into the numbers I model out.\nConclusion\nSnap delivered an incredible Q1 report, with great commentary and outlook for Q2 and beyond. The company is a top-tier growth stock with incredible long-term margin potential because of their improving cost structure. The momentum building in Snap's business will eventually be reflected in stock price action. Since it hasn't yet, I continue to rate Snap at Buy with a $100 price target.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":108287378,"gmtCreate":1620031061094,"gmtModify":1704337605777,"author":{"id":"3578866938376185","authorId":"3578866938376185","name":"请对我善良点","avatar":"https://static.tigerbbs.com/5515abaaba46d935312343148b97579f","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3578866938376185","authorIdStr":"3578866938376185"},"htmlText":"Please like and comment [開心]&nbsp;[開心]&nbsp;","listText":"Please like and comment [開心]&nbsp;[開心]&nbsp;","text":"Please like and comment [開心] [開心]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108287378","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":108283836,"gmtCreate":1620030514925,"gmtModify":1704337597025,"author":{"id":"3555043402922696","authorId":"3555043402922696","name":"逢場作戲又一日","avatar":"https://community-static.tradeup.com/news/6a5fbf2ceb7c7ee0399d41e6348dadf7","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":4,"crmLevelSwitch":1,"idStr":"3555043402922696","authorIdStr":"3555043402922696"},"htmlText":"Good move SNAP","listText":"Good move SNAP","text":"Good move SNAP","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108283836","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108217247,"gmtCreate":1620030002089,"gmtModify":1704337592764,"author":{"id":"3580894329376649","authorId":"3580894329376649","name":"RisingV","avatar":"https://static.tigerbbs.com/d0d67fee06698c991837f0a569855bfd","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3580894329376649","authorIdStr":"3580894329376649"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108217247","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108215487,"gmtCreate":1620029810049,"gmtModify":1704337590314,"author":{"id":"3556756933727652","authorId":"3556756933727652","name":"NicSim","avatar":"https://static.tigerbbs.com/8a2eb1c00bed3f70acf947d23464c403","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3556756933727652","authorIdStr":"3556756933727652"},"htmlText":"Okay sell put&nbsp;","listText":"Okay sell put&nbsp;","text":"Okay sell put","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108215487","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4207687,"gmtCreate":1620030243244,"gmtModify":1680786752691,"authorId":3561713422683896,"author":{"id":3561713422683896,"idStr":"3561713422683896","authorId":3561713422683896,"name":"MasterStonker","avatar":"https://community-static.tradeup.com/news/a1f9b1071e75ec59572f7ba9bbb0a4ed","vip":1,"currentWearingBadge":{"badgeId":"972123088c9646f7b6091ae0662215be-3","templateUuid":"972123088c9646f7b6091ae0662215be","name":"Legendary Trader","description":"Total number of securities or futures transactions reached 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like and comment for rewards!","listText":"Please like and comment for rewards!","text":"Please like and comment for rewards!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":3,"repostSize":0,"link":"https://ttm.financial/post/108215958","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4207642,"gmtCreate":1620029833136,"gmtModify":1680786749832,"authorId":3570530631542520,"author":{"id":3570530631542520,"idStr":"3570530631542520","authorId":3570530631542520,"name":"Jvalour","avatar":"https://static.tigerbbs.com/dabcad43bda9229fb25d582c8c1ec36b","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108215958,"type":1,"supId":4207633,"prevId":0,"content":"Like and comment back! Thanks","text":"Like and comment back! Thanks","html":"Like and comment back! Thanks"},{"id":4207644,"gmtCreate":1620029842826,"gmtModify":1680786749283,"authorId":3577751115441703,"author":{"id":3577751115441703,"idStr":"3577751115441703","authorId":3577751115441703,"name":"CathayWood","avatar":"https://static.tigerbbs.com/75bab2a33a1bab50e1246e3ff093e54a","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108215958,"type":1,"supId":0,"prevId":0,"content":"<u>comment</u>","text":"<u>comment</u>","html":"<u>comment</u>"},{"id":4207633,"gmtCreate":1620029782668,"gmtModify":1680786749050,"authorId":3568626113017315,"author":{"id":3568626113017315,"idStr":"3568626113017315","authorId":3568626113017315,"name":"Sashiimi","avatar":"https://static.tigerbbs.com/cfb4827a74c92f32e435adf6eb295807","vip":1,"currentWearingBadge":{"badgeId":"44212b71d0be4ec88898348dbe882e03-2","templateUuid":"44212b71d0be4ec88898348dbe882e03","name":"Executive Tiger","description":"The transaction amount of the securities account reaches $300,000","bigImgUrl":"https://static.tigerbbs.com/9d20b23f1b6335407f882bc5c2ad12c0","smallImgUrl":"https://static.tigerbbs.com/ada3b4533518ace8404a3f6dd192bd29","grayImgUrl":"https://static.tigerbbs.com/177f283ba21d1c077054dac07f88f3bd","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2023.07.14","exceedPercentage":"80.48%","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1101},"crmLevel":2,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108215958,"type":1,"supId":0,"prevId":0,"content":"Thanks!","text":"Thanks!","html":"Thanks!"}],"langContent":"EN"},{"id":108212820,"gmtCreate":1620029741560,"gmtModify":1704337588201,"author":{"id":"3581676808108385","authorId":"3581676808108385","name":"Qianze","avatar":"https://static.tigerbbs.com/cb0744f55959c12739ad91d9b196f6ac","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581676808108385","authorIdStr":"3581676808108385"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108212820","repostId":1139118247,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":20,"commentSize":6,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1139118247"}