Snap’s Monetization Remained Sluggish In Q2, But Things Can Get Better

by Trefis Team
-5.25%
Downside
15.90
Market
15.07
Trefis
SNAP
Snap
Rate   |   votes   |   Share

Snap (NYSE:SNAP) published its Q2 2017 results on Thursday, posting a wider than expected loss, while missing market expectations on both daily active user (DAU) adds as well as ARPU. The stock declined by as much as 17% in after hours trading, falling to levels of under $12. Below we provide some of the key takeaways from the company’s earnings release.

Trefis has a $15 price estimate for Snap, which is slightly below the current market price.

See Our Full Model And Analysis For Snap Here

User Growth Continues To Slow Amid Facebook Onslaught 

Snapchat added 7 million DAUs over the last quarter, taking its global user base to 173 million. This is well below the 21 million users it added in the year-ago period and slightly below its Q1 2017 adds (8 million). The slowdown in user growth comes as larger rival Facebook continues to copy Snap’s best features, rolling them out to its user base of over 2 billion users across various properties. For instance,  Facebook has added around 100 million new daily users on its Instagram Stories features between January and June. This is over 6x Snap’s total user adds over the first half of this year.

ARPU Growth Was Sluggish, But Things Could Pick Up

Snap’s monetization also remained somewhat sluggish this quarter, with overall quarterly ARPU coming in at $1.05. While this marks an increase of around 17% sequentially, it remains roughly at the same levels the company posted over the holiday quarter. That said, Snap still appears to be in the early stages of its monetization process. The company’s engagement levels remain high, standing at 30+ minutes per day overall, and over 40 minutes for users under the age of 25. Snap also stands to gain from its recent investments in ad tech. The company has been doubling down on programmatic sales, while launching its self-service ad platform in Q2. Snap noted that over 60% of its ad impressions are now being delivered via programmatic, which is more than double last quarter’s figure. Snap has been working on getting more advertisers on board, while training customers on how to leverage its platform. The company is also improving its ad measurement and analytics. In June, Snap acquired Placed, which can track activities such as store visits and offline purchases, helping to measure the efficacy of its digital advertisements.

Cutting Our Price Estimate To $15

We have cut our price estimate for Snap from around $17 per share to about $15 per share, to account for its slower than expected monetization as well as lackluster user growth. That said, the company now appears undervalued at the current market price of about $12, as it trades at just over 7x projected 2018 revenues, despite the fact that revenue growth rates are likely to remain in the double digits over the next few years. In comparison, Twitter, which trades at about 5x projected 2018 revenues, has been posting practically no growth.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!