Why Has Snap Stock Doubled This Year & What’s The Outlook?

Snap (NYSE:SNAP) stock has outperformed this year, almost doubling since early January, driven by its stronger than expected daily active user (DAU) growth over Q1 (~4 million adds), its expanding ARPUs, and narrower operating losses. The company has also been taking multiple initiatives to broaden its reach, launching a new games platform, overhauling its Android app, while also opening up its platform to allow users to share Stories on partner apps. In this note, we take a look at what lies ahead for Snap.

View our interactive dashboard analysis on Why Has Snap Stock Doubled This Year & What’s The Outlook?  You can modify our key estimates to arrive at your own forecasts for the company’s projected revenues and EPS. In addition, you can view more Information Technology company data here.

North American Advertising Business

• While Snap’s average daily active user base has expanded from about 43 million in 2015 to about 76 million in 2017, growth slowed down in 2018 on account of the poorly received app redesign and increasing saturation (Snapchat reaches 90% of 13 to 24-year-olds and 75% of 13 to 34-year-olds in the U.S.)
• We expect the metric to improve modestly, growing to about 86 million by 2021.
• ARPUs have been expanding, driven partly by the company’s shift to self-serve ads – which enables marketers of all sizes to buy and manage ad campaigns on Snapchat.
• Snap’s latest redesign also appears to be driving the ARPU expansion to some degree, as the new layout emphasizes premium content.

International Advertising Business

• Snap’s International average DAUs grew from around 68 million in 2015 to about 91 million in 2016, after which growth moderated to about 99 million in 2018.
• We expect the metric to grow to about 112 million by 2021, as the company rolls out a rebuilt version of its Android app, which offers better performance and a more streamlined user experience.
• International ARPUs are expected to expand at a faster pace compared to North American ARPUs, driven partly by the shift to self-serve ads, which is enabling the company to enter new markets more quickly without having to go through Snap’s ad sales teams.

Snap Will Approach Break-Even By 2020

• Snap’s adjusted margins should trend steadily higher to about 9% by 2021.
• The expansion will be driven by a growing revenue base, a larger mix of programmatic sales, and potentially more favorable infrastructure costs.
• Snap’s EPS is likely to turn positive by 2021, per our estimates.