After Strong Q3 Showing, Can Snap Continue To Grow Advertiser Demand?

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Snap (NYSE:SNAP) reported an earnings beat for the third quarter last week, with the company witnessing strong growth across metrics. Despite adding 7 million daily average users (DAUs), the company admitted that generating demand is the real task at hand. In order to grow demand, Snap has been marketing its audience quality and reach, adding to its product portfolio for advertisers, marketing the improving ROI of its products to advertisers, and also investing in its sales force. The reorganization in its North American sales force seems to have already borne fruit. However, its international business still has scope of improvement.

Trefis captures trends in Snap’s revenues over the years along with our forecast for the current year in an interactive dashboard. Snap’s 2 divisions (1) North America Advertising Revenues and (2) International Advertising Revenues are expected to contribute $1 billion (64%) and $556 million (36%) respectively to the company’s expected 2019 revenue figure of $1.6 billion.

Snap’s Business Model

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What Need Does It Serve?

Snap makes money by selling advertising space on its platform, which is a social networking play on photographs.

What Are The Alternatives?

Snap competes with the likes of Facebook, Whatsapp, Instagram and other social networks.

Has 2 Operating Segments

  • North America: Segment revenue was derived from the sale of advertising solutions to customers in the North America region.
  • International: Segment revenue was derived from the sale of advertising solutions to customers outside North America.

Historical And Expected Revenue Growth

  • The growth in average revenue per user (ARPU) in 2017 had outpaced user growth, leading to over 100% growth in revenues. 2018 saw another strong growth year for ARPU leading to 43% growth. The difference between growth rates witnessed in 2017 and 2018 was primarily because the figure has begun to normalize, even as the company faces stiff competition from other social networks.
  • North America Advertising Division revenue growth of $416 million over the next two years is likely to be driven by growth in number of users.
  • International Advertising Division revenue growth of $484 million over the next two years is likely to be driven by growth in average revenue per user.

Additional details about our forecast Snap’s revenues by segment are available in our interactive dashboard

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