Summary
- Snap delivered an absolute bombshell of a quarter on all fronts. Despite the general expectation for eroding advertising budgets in 2020, the company found a way to thrive.
- Bearish calls on the fundamentals have been downright wrong. While the valuation is concerning, momentum is building for the name, with the market cap now eclipsing ~$60 billion.
- Snap remains a quite unique platform relative to competitors in the space. Their unique demographic reach has made the platform coveted to advertisers. Competition is just irrelevant at this point.
- Continued focus on augmented reality and gaming as a tool for delivering ads to users will drive staying power amongst advertisers. Snap remains a unique platform for cultivating relationships with younger users, even with the emergence of TikTok and Instagram.
- Upgrading from Sell to Hold, PT raised from $17 to $37.
Brief Breakdown of 3Q
Snap (SNAP) recently reported Q3 earnings, which led to an incredible reaction in the share price.
Data by YChartsThe stock swiftly rose in a matter of days from the mid-$20s to the low $40s on the back of this quarter. So, what all drove this reaction? Before we break down the conference call, let's look at the quarterly numbers themselves.
- ARPU: $2.73 vs. $2.27 expected (20.3% BEAT)
- DAU: 249 million vs. 243.7 million expected (2.2% BEAT)
- Revenue: $679 million vs. $551.83 million expected (23% BEAT)
- non-GAAP EPS: $0.01 vs. -$0.06 expected
The biggest beat here is likely from the ARPU part of the print. Analysts across the sell side and buy side had widely anticipated no serious return in ad spend until next year. Christmas arrived early, with strength from both direct response and brand advertising spend. In addition, Snap mentioned that it saw tailwinds from brand advertisers pulling spend and "boycotting" Facebook (FB) for social justice initiatives. How big of an impact this had on the quarter remains unknown, but it seems that the majority of the beat was generated the general recovery in advertising budgets.
