Snap Is Bucking The Social Media Trend

Social media stocks have trended in the same direction in the last few years.

Companies like Facebook parent Meta Platforms, Snap, Pinterest, and Twitter are all subject to general influences, especially during the pandemic. During the lockdown, usage went up, but advertising plunged.

After the social-media ad spending began, companies faced headwinds from supply chain challenges and cost inflation. It wasn’t surprising when Meta shares plunged 26% on Thursday, taking other social media stocks down with it.

·  Snap 24%

·  Pinterest 10%

·  Twitter 6%

Surprisingly on Friday, Snap shares rocketed more than 50%. They cruised ahead with 20% daily active user growth and 42% revenue growth.

Here are the three reasons Snap is executing in a difficult social media environment.

Snapchat is TikTok-proof

TikTok has been the biggest insurgent in social media over the last few years. Its growth has come at the expense of other media platforms, companies from Facebook to Netflix, and Facebook even introduced its own TikTok copycat, Reels.

But Snapchat has continued to grow even while TikTok has been ascendant. That’s because Snap has differentiated itself from other platforms thanks to products such as Snap Map and augmented reality (AR)tools like Lenses, which have generated strong engagement.

It Keeps Innovating

Snap is more creative than any other social media company.

First, it invented Stories, copied by almost every social media platform. Snap also created disappearing messaging and pioneered Maps to give users a creative way to keep in touch. It also invested aggressively in AR Lenses, a hit with users and advertisers.

Unlike Facebook, whose mission has been to connect people, Snap calls itself a camera company, saying, “We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.”

The Business Is Scaling Nicely

Snap just reported its first-ever quarter of profitability based on GAAP, as well as its first full year of positive operating cash flow and free cash flow. After years of strong top-line growth, the bottom line is finally responding.

Because the revenue per user continues to increase as its ad products get better, its profitability should rapidly improve, giving Snap more money to spend on R&D and driving the growth.

Digital advertising giants such as Meta and Alphabet regularly post operating margins of 30%. While Snap might never reach that percentage, investors must be encouraged by the improvements on the bottom line.