Snap Reports Strong Q4; Fair Value Down to $66

Snap’s SNAP fourth-quarter results surpassed both our top and bottom line estimates, showing resilience following mixed third-quarter results and marking 2021 as its first year generating positive free cash flow. User growth and monetization were above our estimates as well. Despite advertising headwinds from Apple’s IOS privacy policy changes as well as supply and labor shortages that are expected to persist through the first half of 2022, the firm was able to demonstrate growth through its range of advertising clients and innovation. We believe Snap will continue to address the Apple changes as more and more clients adopt their ad measurement tools.

While we reduced our estimates for the first quarter of 2022, placing them in line with management’s outlook, we expect advertisers to continue to test and use Snap’s latest ad performance measurement tools, which more effectively utilize the firm’s first-party data. Several advertisers adopted these tools in the fourth quarter, and we anticipate more to follow in 2022. The adjustments to our projections resulted in a $66 fair value estimate, down from $70. The stock traded up 59% in after-hours trading, following a decline of 24% during market hours.

For the fourth quarter, Snap total revenue increased 42% year over year, while revenue for 2021 increased 64%. Daily active users increased 20% year over year in the quarter to 54 million, and 20% annually to 319 million in 2021. This represents the fifth consecutive quarter of at least 20% DAU growth. User and user monetization growth of 5% and 33% drove North American revenue up 41% year over year. Revenue in Europe and other markets were up 48% and 42%, pushed by 11% and 41% user growth and 33% and 1% increases in ARPU, respectively.

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