Snap Stock Investors Are Watching Snapchat Advertising Expansion

Laura Hoy

When social media micro-blogging company Snap Inc. (NASDAQ:SNAP) made its debut on the market two years ago, many analysts — myself included — were wondering where exactly the company was headed. Not only did the SNAP stock IPO describe it as a “camera company,” but the firm’s employees themselves admitted that they weren’t sure about the the long-term plan.

Snap Stock Investors Are Watching Snapchat Advertising Expansion

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However, the past few months have revealed a much more streamlined company and SNAP stock has picked up in response. 

In its most recent quarterly results, the Snapchat folks revealed that although the number of daily active users increased from the previous quarter for the first time in more than a year, the figure was still 1 million lower than it was in the first quarter of 2018. While that’s admittedly troubling, the fact that Snap was able to post a revenue increase of nearly 40% while user numbers stagnated is pretty impressive. Snap’s per-user revenue is up by 47 cents compared to the same time last year  — likely the result of the company’s laser focus on building out its advertising business.

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Growth Ahead

This year we’ve seen Snapchat lay out a roadmap to advertising success which suggests that the Q1 revenue results were the beginning of a larger trend. The firm’s augmented reality platform Scan has the potential to draw more developers in and give its users a reason to use the app for longer periods of time as they create GIFs and solve math problems.

This year we also saw SNAP bet on mobile gaming with its Snap Games platform. Not only is it another draw for users, who can play for free, but it gives the firm more ad space to sell. 

The Future of SNAP

The latest development in Snap’s advertising expansion is a partnership with Shopify (NYSE:SHOP), an e-commerce platform that helps businesses manage every aspect of their online presence in one place. Shopify users can already buy ad-space with Facebook (NYSE:FB), but now they will also have the option to create ad-campaigns for Snapchat as well. This could be a huge step forward for SNAP’s advertising arm as it gives small businesses without a dedicated social media marketing team the ability to leverage the site easily. That accessibility is key, especially when you consider that SNAP caters to a much younger generation.

Snapchat has engaged the coveted 13-24 age group, a generation that has become increasingly difficult to reach, but is said to have just as much, if not more, purchasing power than millennials. That’s a huge draw for Shopify users who are looking to expand their reach.

Another big move that SNAP is making this year is adding premium ad space dubbed “Snap Select.” Snap Select will allow advertisers to purchase commercials up to 6 seconds that users won’t be able to skip. The video ads will play in Snapchat’s Discover section and will appear on what execs deem to be the platform’s “most premium” content.

The Bottom Line for SNAP Stock

I’ve been pretty negative about SNAP stock over the past few years because I didn’t like management’s style and the company’s road map looked blurry and disorganized. However, these new developments have lifted my opinion on the firm’s future. 

Of course, investors should still consider the fact that Facebook’s Instagram is offering pretty much an identical user experience and has been able to copy SNAP’s most-coveted features in the past. Competition for advertisers is fierce and SNAP still doesn’t have a very wide moat.

The Shopify partnership coupled with SNAP’s latest features and advertising offerings make the firm look much more attractive. Plus, I like the company’s AR potential as well as it’s gaming addition.

With that said, I’m still not a SNAP stock bull. While the firm is certainly doing more with what it’s got, the bottom line is that the platform is still losing daily active users. If that trend doesn’t reverse, advertisers won’t care what’s on offer. If SNAP can reignite interest in its platform and get its user numbers back on the rise, I’d start to consider it, but right now the future still looks a bit too uncertain.

As of this writing, Laura Hoy was long FB. 

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