Snap Still Pricey As Shares Slide

Snap’s total revenue jumped 286% year over year to $150 million as the firm continues to attract ad dollars, which was evident in the 181% increase in average revenue per user over the prior year. User engagement time increased to over 30 minutes per day, from 25 minutes, albeit a mere 4% sequential growth in DAUs, which was flat compared with growth in the previous quarter. The firm ended the quarter with 166 million DAUs, up from 159 million and 122 million in 2016 fourth and first quarter, respectively. While Snap’s management believes that growth in user engagement is more important for advertisers, we disagree. In our view, in order to compete effectively with Facebook for the social platform ad dollars, Snap needs to demonstrate growth in both users and user engagement. In addition, while Snap user growth has not accelerated, growth in Facebook’s Instagram users has, which increases the likelihood of Instagram emerging as a substitute for Snapchat.

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