Snap: Risk-Reward Looks Attractive To Initiate A Position

Summary

  • Snap reported strong Q1 FY24 earnings, with revenue growing 21% YoY and Adjusted EBITDA expanding, beating estimates.
  • The strength in revenue was driven by growth in advertising, with particular strength in DR growing 17% YoY, as the company continued to innovate its advertising platform to drive ROAS.
  • During the quarter, it saw its DAUs grow 10% YoY with growing engagement on the platform, coupled with SMB advertisers growing 85%.
  • While the decline in DAUs in North America is a concern given substantially higher ARPU compared to international markets, I believe the stock has sufficiently priced in the risk.
  • Assessing both the “good” and the “bad”, I am optimistic about the product innovation roadmap and growing operational discipline and believe it is attractively priced from a risk-reward perspective.

Introduction & Investment Thesis

Snap (NYSE:SNAP) is a visual messaging application where Snapchatters (users) can interact using its features that include Camera, Visual Messaging, Stories, Spotlight, and more. The company has underperformed the S&P 500 and Nasdaq 100 YTD, although the stock rose close

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