SNAP - Snap: Risk-Reward Looks Attractive To Initiate A Position

2024-06-20 08:26:02 ET

Summary

• Snap reported strong Q1 FY24 earnings, with revenue growing 21% YoY and Adjusted EBITDA expanding, beating estimates.
• The strength in revenue was driven by growth in advertising, with particular strength in DR growing 17% YoY, as the company continued to innovate its advertising platform to drive ROAS.
• During the quarter, it saw its DAUs grow 10% YoY with growing engagement on the platform, coupled with SMB advertisers growing 85%.
• While the decline in DAUs in North America is a concern given substantially higher ARPU compared to international markets, I believe the stock has sufficiently priced in the risk.
• Assessing both the “good” and the “bad”, I am optimistic about the product innovation roadmap and growing operational discipline and believe it is attractively priced from a risk-reward perspective.

Introduction & Investment Thesis

Snap ( SNAP ) is a visual messaging application where Snapchatters (users) can interact using its features that include Camera, Visual Messaging, Stories, Spotlight, and more. The company has underperformed the S&P 500 and Nasdaq 100 YTD, although the stock rose close to 30% after its Q1 FY24 earnings in April, where revenue grew 21% YoY and Adjusted EBITDA expanded from $813,000 in Q1 FY23 to $46M, beating estimates. Its advertising revenue grew 16% YoY with strength in Direct Response (“DR”) advertising solutions, as they continued to build new capabilities in their advertising platform to attract advertisers and drive higher return on ad spend (“ROAS”)....

For further details see: