Social media stocks in the United States stood out in this period of pain. The novel coronavirus outbreak in 2020 affected global economies and the corporate sector. The companies in this sector saw stellar growth that boosted the value of their shares, along with other major Big Tech winners such as Apple (AAPL), Amazon(AMZN), Google(GOOG), and Netflix(NFLX).
Facebook (FB), Twitter (TWTR), Snap (SNAP), Match (MTCH), Weibo, and Yelp have all seen a sharp rise in the past year. The gains are expected to continue well into 2021.
This graph shows the impressive bull run that these shares have experienced. But the company behind Snapchat, Snap Inc., has stood out. Its shares have gained nearly 300% over the past year and have brought in huge profits to investors.
Why are Snap investors so fond of the app?
Snap’s highly popular Snapchat platform has always been a hit and continues to draw more users at a steady pace. Snapchat saw a rise in downloads as people were forced to stay at home during the pandemic and turn to alternative entertainment sources to replace going out. In its most recent quarterly earnings, the company reported a growth of 22.2% in its daily active users. This is a remarkable feat, given TikTok’s growing competition. It also reported a large increase in the number of users in India, one of the world’s largest countries. In India, the daily active users of the firms grew by 150% and crossed the 60-million mark.
Its user base is also experiencing changing demographics. This helps it attract more advertisers and revenue to target these customers. According to the company’s latest analysis, it has reached more than 70% of 13-24-year-olds in the most lucrative digital advertising markets. It also highlighted that the Snapchat Generation made up 40% of global consumers, and approximately 80% of the audience was above the age of 18 years. Advertisers should target this group with filters and technology features.
Earnings Snapshot: The company’s fourth-quarter revenue was $911 million. This is an increase of 62%. Its earnings per share, at 9 cents, also exceeded analysts’ expectations. The company’s net loss on an annual basis was $113 million. This is a 53% decrease from the $241 million loss it had last year.
Updates with lots of features. While the filters that improve images and videos are popular, this company has continually rolled out new features to attract more users and keep existing ones. Snap Games is a platform for live multiplayer gaming that was introduced in 2019. It then introduced augmented reality platforms that allowed brands to show off their products and users to test them virtually. It successfully attracted brands like Champs Sports (KSS), Kohl’s (KSS), and Levi Strauss & Co. (LEVI), to name a few. Users have also enjoyed its Discover platform, which provides original content from news publishers. Spotlight, a platform for short-form videos where creators earn money, is the latest addition. Spotlight has already attracted 100 million active monthly users.
What are the risks?
Snap’s growth has been disruptive and promising, but the company warns of future headwinds for its financials. Advertising revenue may be affected in the short term as advertisers stopped campaigns following the riots at the U.S. Capitol on January 6, 2021. The company’s executives noted that the first quarter of 2021 had been slow.
The company also expects to have an impact on the first quarter due to privacy changes. Apple’s iOS 14 privacy changes “present an additional risk of disruption to demand,” its CFO Derek Andersen stated during earnings remarks.
Snapping it Up
Snap continues to draw massive investor interest due to its upgraded business model and the continued coronavirus restrictions in various parts of the world. Analysts are highlighting the positives of the company and its stock. This Snapchat story will not ‘disappear soon,’ given the positive outlook.