Snap Earnings: Impressive User Growth Continues, but Monetization Remains Elusive

While we find Snap’s struggle to improve user monetization frustrating, we believe opportunities still exist for a platform that continues to grow its user base. In addition to economic uncertainties, Snap’s various ad platform changes have made advertisers more cautious. However, while the firm is a bit slow on the execution front compared with Meta, its strategy is similar—enhance machine learning to help users find relevant content more easily and engage longer, improve on-site ad conversion, and integrate first-party data with advertisers and/or agencies. While first-quarter results and the firm’s guidance do not show it yet, we think the firm will in time attract more frequent ad buyers and will increase the monetization of its growing user base. We are maintaining our $16 fair value estimate for no-moat Snap.