Snap's Smaller Size Is a Disadvantage as It Fights for User Attention

Snap is the maker of one of the most popular social networking apps, Snapchat, which has captured 414 million global daily users as of the end of 2023, most of whom are between the ages of 18 and 24. We believe that Snap and its users benefit from a network effect and that the firm is starting to attract the attention (and dollars) of advertisers. However, there is no guarantee that Snap will effectively monetize these users consistently. In turn, we are not yet convinced about the firm’s ability to generate excess returns on capital over the next decade.