Snapchat (SNAP) Stock Forecast and Analysis

Investing
Updated: 8th Jun 2021
Written by Sean Graytok
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Last year, Snapchat stock essentially doubled overnight — is it due for another pop?

Let’s find out in this Snapchat Stock Forecast and Analysis.

What is Snapchat?

Snapchat is a messaging app that lets users exchange pictures and videos that are designed to disappear after they’re viewed.

It was founded by Evan Spiegel and Bobby Murphy in 2011 upon the relaunch of Picaboo as Snapchat.

While many classify it as another social media platform, Snapchat markets itself as a “camera company.”

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Snapchat Stock Investment Potential

#1. Daily Active User Growth on Android Phones

Snapchat had more than 280 million daily active users (DAUs) on its platform in Q1 ’21, representing a 22% year-over-year increase.

For the first time, Snapchat’s Android user base is larger than its iOS base.

CEO David Spiegel called this inversion a “critical milestone that reflects the long-term value of the investment we made to rebuild our Android platform.”

In 2017, Spiegel blamed slowing user growth on its app’s poor performance on low-cost Android phones.

Snapchat changed the way it designed its products and even shifted half of its design team to fix this issue — quality display and connection speeds were crucial for an image and video-centric app to work.

Four years later, the user base flipping has validated Snapchat’s efforts.

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#2. Social Commerce

Apple’s latest iOS 14.5 update allows users to opt-out of being tracked by applications. This makes it more difficult for platforms like Instagram and Snapchat to deliver targeted ads, which results in lower conversion rates and less revenue.

Snapchat is following Facebook’s lead (this time) and attempting to bring more commerce onto its platform to hedge against its falling ad revenue.

Here are Snapchat’s recent partnerships:

  • Fitness company Sweat to track body movement while exercising to recommend optimal form to Snapchatters
  • Gucci to launch the first sponsored LiDAR Lens to project a 3D camping site around the user to promote the Gucci and North Face collaboration
  • American Eagle to launch a sponsored Lens which displays different types of American Eagle jeans in AR with specific fits, washes, and the option to click to purchase
  • Newspaper publisher Gannet to promote advertising solutions to more than 100,000 small business advertisers in the U.S. and Canada
  • Acquired sizing technology company Fit Analytics to power solutions for retailers and brands

Additionally, Snapchat partnered with Samsung to feature its popular Snapchat Lenses in Samsung’s native camera application on select new smartphones.

Snapchat is aggressively diversifying its monetization streams beyond users accidentally clicking ads when using its app.

#3. Augmented Reality

Chris Dixon of a16z famously said, “The next big thing will start out looking like a toy.” We believe Snapchat fits this framework due to its long-term potential with augmented reality (AR).

In 2011, many questioned Snapchat’s initial use case: a messaging app that deletes received images ten seconds after opening? Hmm.

Today, few companies are better positioned to deliver next-gen AR into the hands of millions than Snapchat.

Snap’s AR currently allows users to try on watches and jeans. Zooming in on Snapchat’s innovation with AR, this represents the later stages of its “toy” phase beyond the Dog filter.

We believe the final level of this AR game looks something like a Black Mirror episode with social scores and networks projecting above people in the physical world.

We don’t advise Snap-curious investors to stake their conviction on this distant eventuality — the degree to which Snapchat leads or benefits from this innovation is still largely unknown.

The takeaway here is that Snapchat’s AR tech is progressing along the spectrum from “toy” to (potentially) “the next big thing.”

See: Zoom Stock Forecast

Snapchat Stock Moat

A company’s moat is typically some combination of its bull cases where the sum of its parts is greater than the whole.

Ideally, these components make a company’s offering difficult to replicate, securing its market share and profitability.

The following attempts to capture Snapchat’s differentiator:

Network Effects + Unique Advertising Opportunities

Snapchat benefits from network effects like other social platforms, such as Instagram, Twitter (TWTR), PayPal (PYPL), and Square (SQ).

Snapchat’s value depends on the number of users who leverage its offering — you use Snapchat because other people use Snapchat.

While there are many social networking platforms, each satisfies the end-users unique demand and is “hyper niched” to dominate a winner-take-most market.

For Snapchat, it’s the instantaneous image and video sharing. Established network effects in these respective markets make it difficult for disrupters to replace incumbents.

Snapchat’s product offering creates some unique advertising opportunities that the company is just beginning to explore.

Snap’s AR and Lenses can create a more intense advertising model that will add value to the advertiser and consumer alike.

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Snapchat Stock Analysis

Snapchat recently reported Q1 ’21 earnings — here are the main financial highlights:

  • Revenue increased 66% YoY to $770 million
  • Average revenue per user increased 36% to $2.74
  • Operating margin improved to (39)%, compared to (62)% in Q1 ’20
  • Free cash flow improved $131 million YoY to $126 million

Snapchat also shared some of its exciting business highlights:

  • Daily Active Users (DAUs) were 280 million in Q1 ’21, up 22% YoY
  • DAUs increased sequentially and YoY in each of North America, Europe, and Rest of World
  • For the first time, the majority of DAUs for the quarter was on the Android version of Snapchat’s application

Shares of SNAP rose in after-hours trading after beating Wall Street’s earnings, revenue, and user growth expectations.

See: Palantir Stock Analysis

Snapchat Stock Competition

Snapchat and Facebook have been going at it for years, but there are plenty of other challengers. Here are Snapchat’s top competitors:

  • Facebook / Instagram (FB)
  • Google / YouTube / WhatsApp (GOOG)
  • TikTok
  • Twitter (TWTR)
  • Pinterest (PINS)
  • Netflix (NFLX)
  • Apple / iMessage / FaceTime (AAPL)
  • Microsoft / LinkedIn (MSFT)

Generally speaking, Snapchat competes with companies that monetize a user’s attention span.

While Facebook and Google are pioneering the AR frontier, Snapchat might have the most organic use-case for this specific technology.

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Snapchat Stock Bear Case

#1. New Project Risks

Snapchat bulls and bears disagree on the company’s new offerings. The bulls applaud Snapchat’s efforts to diversify revenue while the bears question them.

Snapchat is swinging at a lot more pitches — literally. The company is creating its own content and trying to sign influencers to exclusive deals.

These are new projects. It will be interesting to see Wall Street’s reaction to the success or failures of these endeavors.

In a perfect world for Snapchat shareholders, the company delivers content that is all the good of TikTok without the bad of Quibi.

#2. What is Snapchat?

The fact that Snapchat calls itself a “camera company” and not a social platform is also interesting.

This reveals the company’s long-term ambitions, which do not yet appear to be priced into the stock.

As Snapchat matures, Wall Street might pressure the company to deliver on these grandiose plans or double down on its strengths.

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Snapchat Stock Allocation in Your Portfolio

Snapchat stock might not be for every investor — each person has their own risk profile and investing goals that may or not mix with SNAP.

Consider the following questions when determining your allocation to SNAP, if any:

  • Will Snapchat outperform the S&P 500, Nasdaq-100 (QQQ), and bitcoin over the next 10 years? 20 years?
  • Can Snapchat capitalize on its new advertising partnerships and opportunities?
  • Can Snapchat improve its “Discover” page UI to optimize monetization?
  • Can SNAP appreciate long-term without converting on its AR initiatives?
  • Will Apple’s privacy changes to iOS 14.5 be detrimental to Snapchat’s advertising business?
  • Are Snapchat’s network effects strong enough to retain its users long-term?
  • Is Snapchat’s international growth sustainable?

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Snapchat Brainstorm from SimpleMoneyLyfe

Snapchat partnered with game developer Gismart to launch “Crazy Run,” and the game already has seven million players. Snapchat could be onto something special.

Game developers have been ahead of the innovation curve for decades — most recently, Epic Games’ Fortnite.

Fortnite revealed the number of people who value virtual goods and services years before anyone knew about an NFT.

Snapchat could tap into this new market by allowing users to buy premium and limited AR Lenses.

There are several monetization strategies, too, depending on the AR Lens.

For example, if it’s a premium lens that offers better “filter technology,” Snapchat could make this upsell available to all users and monetize directly.

Collaborations with brands, sports leagues, and artists are another option. Snapchat could sell a limited number of Lenses to a fan base whose team just won a championship.

Or an artist could promote their new album with a limited-edition Lens.

Finally, the NFT route — users could bid on a Lens and be the exclusive owner of it.

These ideas would probably fail on Snapchat’s current platform, but they might succeed if AR goes where we believe it will.

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Snapchat Stock Forecast FAQs

Is SNAP a buy or sell?

Snapchat (SNAP) is a buy or sell, depending on a variety of factors. Some believe that Apple’s privacy changes will be detrimental to Snapchat’s advertising business. Others are excited about Snapchat’s long-term potential with augmented reality.

Why is Snapchat stock going down?

Stocks go up and down for countless reasons. Snapchat stock might be going down due to rising interest rates that trim the valuations of high-flying tech stocks like SNAP.

What is the highest Snapchat stock has ever been?

The highest Snapchat stock price recorded was around $70 per share, which occurred in February 2021.

Bottom Line: Snapchat Stock Forecast

Snapchat is innovating around the changing advertising landscape — time will tell if its new initiatives add shareholder value.

This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok
Sean is a student of the financial and technology industry. He is interested in the people and companies who are driving the innovation that will change our future.