Why Snap’s Stock Is Up By Over 20% Over The Last Three Weeks

Snap‘s (NYSE:SNAP) stock has seen a rally over the three weeks, rising from all-time lows of under $12 on August 11, after the company posted a relatively disappointing set of Q2 earnings, to current levels of close to $15. While the run-up was driven partly by technical factors, such as lower short interest in Snap’s stock (down from 30% at the beginning of the quarter to about 14% currently), there were multiple fundamental drivers as well.

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

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Although Snap’s headline numbers – namely its daily active user (DAU) adds as well as ARPU – disappointed over Q2, there were some positive trends that were likely eventually factored in by the market. For one, the company’s  user growth in the U.S. market – its most lucrative in terms of ARPU – actually accelerated to 4 million users, compared to 3 million in the prior two quarters, despite more intense competition from Facebook’s Instagram. Moreover, engagement on the platform is also improving, with the average Snapchat user now spending about 33 minutes in the app, compared to a little over 27 minutes at the end of last year.

In mid-August,  research firm eMarketer published a report indicating that U.S. teens and tweens appear to be less engaged on Facebook while spending more time on platforms such as Snapchat and Instagram – which are more focused on visual content. eMarketer predicted that Facebook’s usage in the 12 to 17 demographic in the U.S. will decline by 3.4% year-over-year to 14.5 million in 2017. Snapchat’s usage, on the other hand, is expected to increase in younger demographics, with its overall U.S. user base projected to grow 5.8% to 79.2 million.

Snapchat has proven that it has some of the strongest product innovation in the social media space, rolling out products that resonate with younger audiences who have proved increasingly difficult to cater to. Snap’s Maps feature that launched a few months ago is also likely to be gaining traction. Additionally, the company launched its first daily news show through NBC in July, with CNN following with its own show in August. Investors are likely betting that these new products and user engagement, coupled with the company’s self-service advertising platform, which was rolled out earlier this year, could eventually help Snap bolster its monetization.

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