While the novel coronavirus crisis in 2020 hurt global economies and singed the corporate sector, social media stocks in the United States were outliers amid this pain. Companies in this segment witnessed stellar business growth, boosting values of their shares along with major Big Tech winners of Apple (AAPL), Amazon (AMZN), Google (GOOG), and Netflix (NFLX), among others.

The likes of Facebook (FB), Twitter (TWTR), Snap (SNAP), Match (MTCH), Weibo (WB) and Yelp (YELP) rose sharply during the year and the gains have spilled well into 2021 as well.

Returns chart of U.S.-listed Social Media Stocks

 The graph underscores the bull run these shares have witnessed, but the one to stand out among those is Snapchat parent Snap Inc. With gains of nearly 300% in a little over one year, its shares have stood out among the pack, bringing in windfall profits for investors.

What made Snap investors’ favourite?

  • Snap’s extremely popular platform Snapchat has been a constant hit, and it continues to attract more users to its platform at a steady rate. As people stayed locked in at homes during the pandemic, forcing them to opt for alternative sources of entertainment to substitute stepping out, Snapchat witnessed higher downloads. The company reported in its latest quarterly earnings a growth of 22% in its daily active users to 265 million, a formidable feat in the face of growing competition from the likes of TikTok. In fact, it also posted a big growth in user additions in one of the world’s most populous countries — India. The firms’ daily active users grew 150% to cross the 60 million-mark in the country
     
  • The company’s user base is also witnessing changing demographics, helping it bring in more advertisers and revenues to target such customers. As per the company’s recent analysis, it has reached over 70% of 13 to 24-year-olds in the world’s most lucrative digital ad markets. Moreover, it also underscored that the ‘Snapchat Generation’ made up for 40% of global consumers, and roughly 80% of the audience was above the age of 18. The statistics outline a major target group for advertisers, with creative filters and technological features to lure customers.
     
  • Earnings snapshot: During its fourth-quarter results, the company reported a revenue of $911 million, up about 62%, while its earnings per share of 9 cents also beat analysts’ estimates. On an annual basis, its net loss fell to $113 million, down more than 53% from a $241 million net loss last year.
     
  • Feature-rich updates: While filters that enhance images and videos on its platform are widely popular, the company has consistently rolled out other features to help pull in more users and retain existing ones. For instance, it introduced Snap Games, a live multiplayer gaming platform in 2019. This was followed with introduction of augmented reality platforms for brands to showcase their products, which users could virtually try out. It successfully roped in brands such as Champs Sports, Kohl’s (KSS) and Levi’ Strauss & Co (LEVI), among others.  Its Discover platform, providing original content from news publishers, has also been a hit amongst users. The latest addition to the list is Spotlight- a short-form video platform where creators can generate income. Spotlight already has 100 million monthly active users.

What Are The Risks?

  • Snap’s growth story has been promising and disruptive, but it is warning of some headwinds to its financials in the future. Its advertising revenue could take a hit in the short-term as brand advertisers paused campaigns during the period that followed the January 6, 2021 U.S. Capitol riots. Executives at the company flagged that it was a slow start to the quarter.
  • The company is also expecting some impact due to privacy changes that will take effect during the first quarter. Apple’s privacy changes in iOS 14 “present another risk of interruption to demand,” its CFO Derek Andersen said during earnings remarks.

Snapping It Up

Snap continues to attract massive investor interest following its business model upgrades and persisting coronavirus restrictions around the world. While it does flag risks to earnings, analysts are also underscoring the positives for the company and the stock. Given the upbeat outlook, this Snapchat story is unlikely to ‘disappear’ soon. 

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