Savvy investors in Instantaneous (NYSE: SNAP) They may not know all the details of the company, but they do at least know these three things: Snap is home to hundreds of millions of daily active users worldwide. The vast majority of these users belong to an age group coveted by marketers. And finally, smart investors know that Snap faces headwinds due to privacy changes that Apple (NASDAQ:AAPL) made to his IOS.
Keep reading for a detailed look at each of the items mentioned above and to find out which of these factors is playing the biggest role in influencing the stock price lately.
1. 319 million daily active users and growing
Snap has 319 million daily active users (DAUs) as of December 31. That’s a significant increase from the 265 million it had at the same time the year before. Like other social media apps, Snap is free to use. But that shouldn’t take away from the impressive feat of attracting over 300 million DAU. Consumers today have a wide variety of free entertainment options.
Since its service is free for customers, it raises the question of how the company makes money. Snap primarily relies on displaying advertisements to users browsing the app. Therefore, he wants users to come back and stay longer with each visit. Moreover, merchants are more interested in attracting the attention of buyers with greater purchasing power. For Snap, that means users in North America are the most lucrative because they generate the highest average revenue per user (ARPU) — $9.58 — versus an ARPU of $4.06 overall.
2. A younger audience coveted by advertisers
Notably, 90% of Snap’s user base is between 13 and 24 years old in developed markets, and 75% is between 13 and 34 years old. The main objective of marketers is to entice consumers to buy products or services. A step above is to gain a loyal customer for life. The latter offers better lifetime value and justifies a higher initial investment to earn them. For this reason, young consumers are highly sought after by advertisers.
These people address major life choices like buying their first car, getting married, buying their first home, developing brand loyalty, and starting a career. Real estate agencies, car manufacturers and employment agencies would like to influence all of the above decisions. This stands in stark contrast to older demographics, which have already established habits. Even if a brand can steal a customer from a competitor, there is less time to profit from that older consumer’s spending.
The younger user base no doubt helped Snap’s revenue skyrocket from $404 million in 2016 to $4.1 billion in 2021.
3. Apple’s privacy changes create headwinds for Snap
Over the past year, Apple has made changes to its IOS that make it harder to track users on its electronic devices. Snap – and other social media companies, for that matter – rely on these tracking capabilities to deliver targeted ads to users. Marketers value precision advertising because it eliminates waste and provides a better return on investment.
Snap’s management is working proactively to mitigate the headwinds created by the changes and is making good progress. However, management also noted that the adjustments would take several quarters until advertisers feel comfortable.
Overall, this last fact about Snap is the one that has the biggest impact on the stock price. Investors fear that advertisers will cut spending due to the potentially lower returns on investment the changes will bring. It’s too early to tell whether the management tweaks will work effectively around Apple’s changes and allay concerns of a lower return on investment. An increase in risk works inversely to a company’s valuation, and Snap was no exception.
These are three things savvy investors should know about Snap today.
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Parkev Tatevosian owns Apple. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
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