Snap Investor Day Preview: A Stock With Room to Run

Snap Investor Day Preview: Stock With
Cheyne Gateley/VIP

While the rest of the market has been fixated on social media giants Facebook and Twitter, Snap was quietly on a monster run over the past year.  

The stock hit fresh all-time highs Monday, sending its market cap past $100 billion for the first time ever. With its highly anticipated virtual investor day event kicking off Tuesday, investors will be keen to hear from management and CEO Evan Spiegel about what Snap is focusing on to grow market share in the extremely competitive social media space. 

And there could be even more upside potential for the social company.

Over the past year, shares of Snap surged more than 300%, outpacing the broader market and its peers Facebook and Twitter. The S&P 500 rose 21%, while Facebook jumped 30% and Twitter gained 101% during the same time period.  

Snap’s recent success can be attributed to a few factors. The COVID-19 pandemic accelerated growth for the company, and as a result, revenue and user engagement ratcheted higher. It’s all about growth in the tech industry, and Snap has been delivering on all fronts.

In the fourth quarter, Snap’s Daily Active Users (DAUs) grew 22% from last year to 265 million, and it expects to add another 10 million to total 275 million DAUs in Q1. While Snap’s DAU figures are nowhere near the likes of Facebook, it has continued to post steady growth over the years. 

Increased user engagement led to more monetization of its products and ultimately revenue growth. Snap reported a 62% jump in revenue to $911 million during its fourth quarter and, guided, that revenue will likely rise 56% to 60% year-over-year in the first quarter.  

One big advantage for Snap over the years has been its ability to largely avoid most of the regulatory scrutiny plaguing some of its tech rivals. While executives from Facebook and Twitter have had to make multiple appearances on Capitol Hill to testify before Congress, Snap has been able to instead focus on innovation.  

Strengthening its core products and introducing new ones that stick with users proved to be the recipe for success. Snap Map, which was launched in June 2017, had 250 million global users, and the company’s newly introduced TikTok competitor, Spotlight, was off to a strong start. Snap said that just three months after launch, Spotlight grew over 100 million active users in January. For context, TikTok had 100 million users in the U.S. as of August 2020. 

Snap has been firing on all cylinders and investors have been happy so far with the company’s performance; however, it is facing some challenges as well. 

Even after reporting a strong Q4, Spotify stock dipped 7% after a stark warning from CFO Derek Andersen that Apple’s recent iOS 14 privacy changes could pose a serious risk to advertising demand.  

Investors seem concerned about the threat because social media companies like Facebook and Snap rely heavily on advertising to drive overall revenue growth. Though the full impact of how Apple’s privacy changes will ultimately affect Snap are unknown, the uncertainty will put some pressure on the stock. 

While there are headwinds threatening Snap’s impressive rally, if the company can continue proving to investors that its growth remains on a steady track, more record highs could be on the horizon for Snap stock.