Snap Earnings: Advertising Growth and Snapchat+ Drive Monetization

Key Morningstar Metrics for Snap

• Fair Value Estimate: $14.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snap’s Earnings

Snap SNAP posted positive first-quarter results, improving on a difficult previous quarter through better user monetization. Revenue per user increased year over year for the first time since early 2022, reflecting the strength in the broader advertising market and the firm’s efforts to revive growth. We maintain our fair value estimate of $14 per share.

The company’s worldwide daily active user count increased by 10% versus a year ago, roughly in line with the past two quarters, thanks to growth in Europe and the rest of world segment. Frustratingly, the North American user count remains flat at 100 million, a bit less than a quarter of the 422 million worldwide.

Revenue per user grew in all regions, buoyed by advertising revenue growth of 16%, with the nascent small- and medium-size business segment growing at 85%. Snap has had success with advertisers in both brand marketing and direct placement. User monetization also strengthened on solid additions to Snapchat+. Developed markets continue to lead the recovery in monetization, prompting management’s renewed focus on kickstarting growth in North America.

First-quarter revenue increased 21% from last year to $1.2 billion. The operating loss narrowed to $333 million from $365 million a year ago. While operating margins continue to slowly improve, given better advertising revenue and cost controls, management is still several years from achieving operating profitability, which we think will happen in 2028.

The recently approved “sell-or-be-banned” legislation regarding TikTok in the United States has upended parts of social media, as users and activists try to halt the bill with litigation. While an immediate total ban is unlikely, it would have significant consequences for competing firms. YouTube and Instagram are better positioned to capitalize on a ban, given their larger network effects, but Snapchat should see some benefit to its number of daily active users and advertisers.