Snap’s Strong Q2 Results Indicate Digital Ad Strength

While we’ve been expecting digital advertising to accelerate this year, Snap’s SNAP second-quarter results were still very impressive. Both the top and bottom lines easily surpassed our internal projections and FactSet consensus estimates. We have increased our fair value estimate to $74 (from $68) as we believe Snap continues to progress toward providing full-funnel offerings to advertisers of all sizes, which should help retain clients and drive higher ad spending by each. Snap executed well during the pandemic as it enhanced its direct-response offerings, whose growth is now accompanying the resurgence of brand advertising. Growth in Snap’s user count and user monetization were also impressive. The stock jumped nearly 17% in after-hours trading, leaving it at only a slight discount to our latest valuation. We recommend a wider margin of safety for new investors. Total revenue jumped 116% from the pandemic-ridden second quarter of 2020 to $982 million as daily active users increased 23% to 293 million and monthly per-user monetization (ARPU) increased 75% to $3.35. Continuing strong demand for direct response campaigns, along with recovery in more broad-based campaigns, drove ARPU in North America up 117% to $7.37, which when combined with 6% user growth resulted in revenue growth of 129%. Revenue in Europe and other markets surged 94% and 86%, respectively, driven by 10% and 56% user growth and 77% and 20% increases in ARPUs.

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