We came across a bullish thesis on Snap Inc. on Investment Ideas by Antonio’s Substack by Antonio Linares. In this article, we will summarize the bulls’ thesis on SNAP. Snap Inc.'s share was trading at $7.62 as of December 2nd. SNAP’s forward P/E was 18.28 according to Yahoo Finance. Photo by geo uc on Unsplash Snap Inc. operates as a technology company in North America, Europe, and internationally.  SNAP continues to demonstrate strong execution in both user growth and monetization, positioning itself ...

Core Insights - The company is focusing on maintaining Snapchat's unique messaging roots while appealing to advertisers targeting Gen-Z and younger users [1] - A new brand marketing campaign is being launched to redefine Snapchat's value proposition and brand positioning [1][2] Brand Positioning - Snapchat positions itself as the fastest and easiest way to connect with family and friends, emphasizing its unique feature of opening directly to the camera [2] - The platform aims to celebrate its differences from competitors like Instagram, which is known for curated online personas [2] Emphasis on Authenticity - The company highlights the importance of authenticity in its marketing, allowing users to express themselves without the need for over-curation [3] - Snapchat is seen as a platform where users can share more genuine moments, contrasting with the polished content typical of other social media [4] Advertising Strategy - Snapchat is enhancing user engagement by introducing more features like sponsored snaps, aiming for brands to appear authentically rather than as interruptions [5] - The Map feature is highlighted as a utility that fosters connections, allowing users to see where friends are located [6] New Product Offerings - A new product called Promoted Places has been launched, encouraging users to meet at nearby restaurants, further integrating brands into user experiences [7] Market Focus - India is identified as a key market, with 90% of users aged 13-34, showcasing a significant Gen-Z audience [8] - The platform is perceived as a positive and authentic environment, fostering real connections among users rather than follower-based interactions [9]

Core Insights - Snap Inc. has announced a partnership with Perplexity AI Inc. valued at up to $400 million, integrating AI-driven search capabilities into Snapchat, which is expected to create a new growth avenue for the company [1][2] - Following the announcement and a better-than-expected earnings report, Snap's stock surged over 25% in after-hours trading [1][2] Financial Performance - Snap reported Q3 revenue of approximately $1.51 billion, reflecting a year-over-year growth of about 10%, slightly above Wall Street's expectations of around $1.49 billion [2] - The company anticipates Q4 revenue to be between $1.68 billion and $1.71 billion, aligning with analyst expectations of approximately $1.69 billion [2] User Growth and Engagement - Snapchat's daily active users reached 477 million in Q3, representing an 8% year-over-year increase, while monthly active users approached 943 million [3] - The company aims to reach a target of 1 billion monthly active users [3] Advertising Business - Snap's advertising revenue for Q3 was $1.32 billion, showing a year-over-year increase of about 5%, despite previous challenges [3] - The company is focusing on small to medium-sized advertisers and has introduced new ad formats to drive growth [4] Subscription Services - Snap's subscription service, Snapchat+, has nearly 17 million paying users, contributing significantly to the company's revenue diversification [5] - The "Other Revenue" category, which includes Snapchat+, generated approximately $190 million in Q3, marking a substantial year-over-year growth of 54% [6] Regulatory Challenges - Snap has warned that user engagement may decline due to regulatory changes, such as the upcoming social media age restrictions in Australia [6]

Financial Data and Key Metrics Changes - Total revenue increased by 10% year-over-year to $1.51 billion, driven by improved advertising demand and the expansion of direct revenue streams [5][30] - Advertising revenue reached $1.32 billion, up 5% year-over-year, with direct response advertising revenue increasing by 8% year-over-year [30][31] - Net loss reduced by more than 30% year-over-year to $104 million, reflecting progress toward sustained profitability [7][36] - Adjusted EBITDA was $182 million, with adjusted EBITDA margins expanding to 12% [7][35] Business Line Data and Key Metrics Changes - Other revenue, including Snapchat Plus subscription revenue, increased by 54% year-over-year to $190 million [5][30] - Direct response advertising revenue growth was driven by strong demand for pixel purchase and app purchase optimizations, particularly from small and medium-sized business clients [30][31] - The North America large client solutions business experienced a modest decline, while the SMB advertising business grew over 25% [31][64] Market Data and Key Metrics Changes - Advertising revenue growth accelerated in Europe and the rest of the world, with Europe growing by 12% and the rest of the world by 13% year-over-year [31][32] - North America accounted for approximately 43% of total global revenue, decreasing as a share of total revenue by roughly 10 percentage points over the past two years [32] - Global impression volume grew approximately 22% year-over-year, although total eCPMs decreased by about 13% due to increased inventory from Sponsored Snaps [33] Company Strategy and Development Direction - The company aims to reach 1 billion monthly active users globally, with a focus on enhancing user engagement through new features and conversation starters [4][15] - Investments in augmented reality and generative AI are central to the company's long-term strategy, with significant user engagement in AR experiences [15][16] - The company is recalibrating investments in community growth and cost structures to improve financial efficiency [12][13] Management's Comments on Operating Environment and Future Outlook - Management anticipates potential declines in daily active users in Q4 due to internal and external factors, including regulatory changes and age verification initiatives [15][56] - The company remains committed to improving monetization efficiency and ensuring compliance with evolving regulations [15][56] - Management expressed confidence in the long-term growth potential, supported by a robust balance sheet and cash flow generation [37] Other Important Information - The company has authorized a new share repurchase program of $500 million to manage share count for long-term shareholders [40] - A partnership with Perplexity AI will integrate conversational search into Snapchat, expected to enhance user experience and generate revenue starting in 2026 [29][44] Q&A Session Summary Question: On the Perplexity partnership, is the cash stock split already determined? - Management indicated that the cash and stock split for the Perplexity partnership is not finalized and will depend on future developments [42][44] Question: How do you see Snap's role evolving as a distribution channel? - Management highlighted the opportunity to distribute AI agents through the chat interface and Sponsored Snaps, enhancing customer experiences [50][52] Question: Can you provide an update on direct response advertising growth? - Direct response revenue grew by 8% year-over-year, with strong performance in Europe and the rest of the world, while North America lagged [60][63] Question: What is the conviction level on keeping infrastructure costs flat next year? - Management expressed confidence in maintaining flat infrastructure costs through improved capacity utilization and cost structure optimization [66][67] Question: What is the latest thinking on Spectacles and potential financial partners? - Management did not provide specific updates on financial partnerships but emphasized the advanced AR software stack and its potential [69]

Financial Data and Key Metrics Changes - In Q3 2025, total revenue increased by 10% year-over-year to $1.51 billion, driven by improved advertising demand and the expansion of direct revenue streams [5][29] - Advertising revenue reached $1.32 billion, up 5% year-over-year, primarily due to growth in direct response advertising revenue, which increased by 8% year-over-year [29][30] - Adjusted EBITDA was $182 million, an improvement of $50 million compared to the prior year, with a net loss reduced by over 30% year-over-year to $104 million [6][36] - Free cash flow was $93 million in Q3, with a total of $414 million over the trailing 12 months [6][37] Business Line Data and Key Metrics Changes - Direct response advertising revenue increased by 8% year-over-year, with strong demand from small and medium-sized business customers [5][29] - Other revenue, including Snapchat Plus subscription revenue, surged by 54% year-over-year to $190 million [5][29] - The community reached 477 million daily active users, an increase of 34 million or 8% year-over-year [4] Market Data and Key Metrics Changes - Advertising revenue growth in Europe accelerated to 12% year-over-year, while the rest of the world saw a 13% increase [30] - North America advertising revenue grew only 1% year-over-year, with the SMB segment growing over 25% [30][31] - Global impression volume grew approximately 22% year-over-year, although total eCPMs decreased by about 13% due to increased inventory [32] Company Strategy and Development Direction - The company aims to reach 1 billion monthly active users globally and is focusing on enhancing user engagement through new features and conversation starters [4][7] - Investments in augmented reality and AI are prioritized, with plans to introduce new monetization tools and premium offerings [5][20] - The strategy includes recalibrating investments in community growth and optimizing cost structures to improve financial efficiency [11][12] Management's Comments on Operating Environment and Future Outlook - Management anticipates potential declines in daily active users in Q4 due to regulatory changes and internal initiatives [13] - The company remains committed to long-term growth despite short-term engagement headwinds, focusing on monetization efficiency and compliance with regulations [12][13] - Future revenue guidance for Q4 is set between $1.68 billion and $1.71 billion, implying year-over-year growth of 8%-10% [37] Other Important Information - The company has approximately $3 billion in cash and marketable securities, providing financial flexibility for future investments [6][37] - A new share repurchase program of $500 million has been authorized to manage share count for long-term shareholders [39] Q&A Session Questions and Answers Question: On the Perplexity partnership, is the cash stock split already determined? - Management expressed excitement about the Perplexity partnership, emphasizing its potential to enhance Snapchat's role as a messaging service and the unique opportunity to distribute AI agents through the chat interface [41][43] Question: Should we presume that the reason for the leverage in cost of revenue is due to not paying out to content owners? - Management clarified that the improvement in gross margins is attributed to a mix shift towards higher-margin ad formats like Sponsored Snaps and Spotlight, which have lower associated costs [42][46] Question: How do you see Snap's role evolving as a distribution channel? - Management highlighted the opportunity to open up the chat interface to more AI agents and conversational commerce experiences, indicating a strategic focus on enhancing customer engagement through these channels [47][49] Question: Could you talk about your conviction level on keeping infrastructure costs flat next year? - Management indicated a strong focus on improving capacity utilization and efficiency in infrastructure costs, aiming to maintain flat costs into 2026 [60][61] Question: What is the latest thinking on Spectacles and potential financial partners? - Management is preparing for the public release of Spectacles and is considering various options to accelerate technical leadership in the AR space, including establishing a standalone subsidiary for better flexibility [63]

Core Viewpoint - Snap is expected to report its first-quarter 2025 results on April 29, with anticipated revenues between $1.33 billion and $1.36 billion, reflecting a 12.73% increase year-over-year [1][2]. Revenue Expectations - The Zacks Consensus Estimate for Snap's revenues is currently at $1.35 billion, indicating a significant year-over-year growth [2]. - Adjusted EBITDA is projected to be between $40 million and $75 million for the quarter [2]. Earnings Projections - The consensus estimate for earnings remains at 4 cents per share, which represents a 33.33% increase from the previous year's 3 cents [3]. - Snap has surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters, with an average positive surprise of 58.57% [3]. Factors Influencing Performance - Snap is expected to benefit from strong growth in its direct response advertising business, particularly in retail, gaming, and financial services [4]. - The Snapchat+ subscription service has seen its subscriber count double year-over-year to 14 million, contributing significantly to revenue growth [5]. - The rollout of Sponsored Snaps and Promoted Places is likely to attract more advertising spend, especially from small and medium-sized businesses [6]. Cost Considerations - Snap anticipates a year-over-year increase in adjusted operating expenses of 11-12%, driven by headcount growth, wage inflation, and higher legal costs [7]. - Infrastructure efficiencies are expected to help offset some of the increased costs, with management estimating lower infrastructure costs per daily active user [8]. Earnings Outlook - Snap currently has an Earnings ESP of -25.00% and a Zacks Rank of 3, indicating a lower likelihood of an earnings beat [9].