Snap Earnings: Growing Global Presence Drives Strong End to 2024

Key Morningstar Metrics for Snap

• Fair Value Estimate: $13
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snap’s Earnings

Snapchat reported solid fourth-quarter results, with strong user growth and expanding average revenue per user. While Snap’s top-line growth was broad-based, international markets led the way as the firm continues to tap developing markets to attract new users to its platform.

Why it matters: Social media apps compete for share of the finite amount of time that users spend online. To remain competitive against behemoths like Instagram, Snap SNAP must continue to improve its platform’s user engagement and monetization while expanding its user base.

• Snap’s sales grew 14% year over year to $1.56 billion, with sales spearheaded by daily active user expansion, which grew 9% year over year to 453 million. DAU expansion was particularly strong overseas, with rest of world DAUs expanding by 17% to 254 million in the fourth quarter.
• On the monetization side, Snap’s global ARPU grew by 5% year over year to $3.44, reflecting more robust growth in less-monetized markets such as Europe and rest of world (16% ARPU growth for both) that outpaced North America (9% ARPU growth).

Why it matters: We raise our fair value estimate to $13 from $12 for no-moat Snap on our more optimistic outlook around monetization strategies, growing Snapchat+ user base, and expanding global presence. With shares trading up mid-single digits after-hours, we view Snap’s shares as fairly valued.

• Snapchat+, Snap’s paid subscription service, continues to be a bright spot for the firm. Snapchat+ users doubled to 14 million in 2024, with the firm’s paid subscription service continuing to be a hit with users, particularly those from younger cohorts.
• On the profitability side, we were impressed to see fiscal discipline as its operating margins for the fourth quarter clocked in at a loss of 1.7%, up materially from a loss of 18.3% last year. We forecast consistent operating profitability starting 2027 as it scales its operations.

Snapchat’s Simpler Version Gets Rolled Out

Management guided to first-quarter revenue in the range of $1.325 billion-$1.36 billion, implying 14% annual growth at the midpoint of guidance. In terms of profitability, management expects adjusted EBITDA to be in the range of $40 million-$75 million. We view both targets as achievable and roughly in line with our model.

The firm’s roll out of a simpler version of Snapchat continues to gain traction, now with over 25 million users across the geographic markets. The firm reported increased engagement with content among casual users opting for the new version, and thus, we remain optimistic about the app’s full-scale rollout. While there is no material impact of the rollout baked into management’s guidance, we continue to believe that it will help improve user engagement with core features like Spotlight, which directly competes with TikTok.

We believe that this strategy has been further strengthened by the looming decision on TikTok’s ban. Following the Trump administration’s decision to postpone a resolution on the app’s future in the United States, smartphone users are unable to download TikTok from app stores. Although users who had the app before Jan. 19 were able to continue to access it after the temporary ban, we believe uncertainty around the app’s future will likely prompt some users to migrate to close alternatives like Snapchat, which may subsequently attract increased advertiser spending. We continue to closely monitor the situation for a permanent decision on TikTok’s future.