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Stock Analyst Update

Snap's Revenue Growth Slows, but Our Fair Value Remains

The no-moat firm posted strong first-quarter results.

Mentioned:

Snap (SNAP) reported first-quarter revenue in line with our projection and higher than the FactSet consensus, while operating losses came in above our estimates due to higher than expected sales and marketing expenses along with further investments in product enhancements. The firm’s year-over-year user growth accelerated for the fourth consecutive quarter, helped in part by the ongoing coronavirus pandemic lockdowns and quarantines, and was accompanied by an increase in user monetization. While management did not provide revenue or adjusted EBITDA guidance (due to uncertainty surrounding overall ad spending), the firm expects impressive user growth to continue, but revenue growth has slowed down significantly in April. Similar to its peers, we think Snap will bounce back from the pandemic in 2021. We have lowered our 2020 estimates but continue to value no-moat Snap at $17 per share, which represents attractive upside from its April 21 close.

Snap’s total revenue came in at $462 million, up 44% from last year, driven by user growth and increased average revenue per user. The firm’s average daily user count, or DAU, stood at 229 million, a 20% year-over-year increase helped by the lockdowns and quarantines. User growth was accompanied by an increase in both user engagement and time spent on the platform. Average revenue per user was up 20% from last year, mainly due to the firm successfully offering and selling more ad inventory (nearly doubled from last year). Ad prices on Snap’s platform continued to decline (down 23%) due to the higher supply and some advertisers deciding to either cut or halt their ad spending in March as COVID-19 continued to spread globally.

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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.