What Happened to the Snap Stock Price Today?

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• A strong first-quarter earnings report from Snap (NYSE:SNAP) sent SNAP stock higher Friday.
• The social media company’s Q1 numbers topped the Street’s revenue and profit expectations.
• Snap Inc. management also delivered an above-consensus second-quarter guide.

Why It Happened

• Snap’s first-quarter report was as stellar as they come: adding 15 million DAUs in the quarter, equal to 22% year-over-year growth.
• This is Snap’s best DAU growth rate since the pandemic began, meaning user growth is accelerating as the economy normalizes.
• ARPU rose 36% year-over-year, marking the best ARPU growth rate since the second quarter of 2019.
• Revenues rose 66% — the fastest revenue growth rate since Q4 2017.
• Gross margins rose 70 basis points, a continuation of steady gross margin expansion trends.
• Adjusted EBITDA margins improved a whopping 18 percentage points, and Snap is now on the cusp of becoming profitable every single quarter.
• The first-quarter guide calls for revenue growth to accelerate to 83%, and for adjusted EBITDA improvements to continue in a big way.
• From head to toe, it was an excellent quarter. No wonder SNAP stock popped in response.

Does It Matter?

• This stellar earnings report matters a ton.
• There was some fear out there that Snap’s robust 2020 growth trajectory was going to flatten out in the new year as the economy reopens and consumers go back outside.
• We’ve long argued this is not the case. At its core, Snap is a sharing app. The more consumers do things — like go to bars, restaurants, and on vacations — the more they’ll use Snap to share those things. We see Snap as a big winner in the economic reopening of 2021.
• Snap’s first-quarter numbers strongly corroborate our thesis. The company is adding more users and seeing strong engagement with its app today, than at basically any point during the pandemic.
• With ad spending rebounding and Snap also doing everything possible to create innovative new ad formats, Snap is in a great position to see its growth trajectory meaningfully improve throughout the year.
• We like SNAP stock for 2021.

SNAP Stock Price Forecast

• The consensus sell-side price target on SNAP stock is about $80.
• We actually think shares are worth closer to $100, which is where the highest targets on the Street currently sit.
• Over the next 12 months, SNAP stock should trend towards $100, behind a combination of sustained big user growth, accelerating ARPU growth, and continued profit margin expansion.

The world’s entertainment services are being digitized at a pace that’s accelerating, as globalization and technological convenience converge to create a more tech-centric society.

My top hypergrowth stocks in this megatrend include companies from social media, advertising, streaming TV and iGaming.

Snap fits that billing. We think Snap is the most innovative company in the burgeoning social media space today. I’m confident saying that it has the potential to become the next Facebook.

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