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The upward trajectory for photo-sharing app operator Snap (NYSE:SNAP) continues unabated. Shares of the company rose 25% during Q2 alone, and have moved higher since. Over the past 12 months the stock has rallied more than 200%.
This momentum has made Snap the best social media stock among the smaller players.
The past year brought a record number of daily active users on its Snapchat app where they found social connection and entertainment during the pandemic. The number of users has surged. As well, users have increased the amount of time they spend watching premium content on Snapchat. This uptick coincided with the company’s investments in content and creative tools.
The California-based Snap tactfully channelled this increased traffic to ramp up its appeal for advertisers. Sales in the second-quarter more than doubled compared with the same period a year ago, reaching $982.1 million. Snapchat, the mobile app for sending disappearing messages and watching video content, added 13 million daily users during the second quarter, a 23% jump from the same period a year ago.
By the end of June, about 293 million people globally were using Snapchat every day, up from 173 million this time four years ago. In comparison, Twitter (NYSE:TWTR) reported 206 million daily users in the second quarter.
As Snap business fires on all cylinders, there are some risks ahead that could stop the stock’s remarkable upside move. One of the biggest risks—which is not unique to Snap—is Apple’s (NASDAQ:AAPL) changes to its iPhone app policy. In a software update this year, Apple is letting iPhone users decide if they want to be tracked for advertising purposes.
Across the industry, only 25% of people are opting to give apps permission to track their behavior, according to Branch, which analyzes mobile app growth. Reduced tracking means it’s harder for social media companies like Snap to tailor and target ads, putting revenue at risk.
Another unknown in the post-pandemic environment is whether users will reduce their social media interaction when life returns to normal. Snap, like some of its bigger rivals, including Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL), benefited from an e-commerce boom during the pandemic, forcing companies of all sizes to spend more on social media ads in order to reach customers.
Amid these risks, however, some analysts still believe that there is more upside for Snap shares. Analysts at Loop Capital in a recent note said Snap’s ad business will remain a “powerful driver for the near- and medium-term” growth.
The note added:
“We remain bullish on Snap as the company continues to show the best revenue growth momentum in the internet advertising sector and with significant monetization upside to match other networks.”
The majority of 39 analysts polled by Investing.com, continue to have an “outperform” rating on the stock, with the 12-month consensus price target showing about 10% upside from its current level.
Chart: Investing.com
Snap shares closed Wednesday at $78.60.
These bullish projections indicate that analysts believe in the company’s strategy to fuel growth by deploying its augmented reality tools and expanding in international markets.
The social media company forecasts that it could generate revenue growth of 50% or more for several years, as advertisers increasingly seek to tap Snap’s tools which let users interact with products virtually. On the global front, the company is adding more local content, investing in regional marketing campaigns and offering more language support to products.
Bottom Line
Snap continues to remain our favorite play to capture social media growth in the post-pandemic environment due to its new digital tools and its focus on the right segment of the market.
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