Snap (NYSE:) shareholders have been on a wild ride in 2021, as the stock rallied to hit all-time highs early in the year only to fall over 30% from its peak. The social networking company is an exciting option for growth investors who are interested in interactive media exposure, although it can certainly be a volatile name to own. With that said, the stock has started to resolve higher after several months of back and forth price action, which could be a sign that new highs are on the horizon.
Many investors view Snapchat as one of the highest quality social media stocks out there, particularly when compared to competitors such as Twitter (NYSE:) and Pinterest (NYSE:). With a growing user base including a 22% increase in daily active users in Q1 and exciting new opportunities for monetizing the app, this is a company that could be heading for a photo finish in 2021. Let’s take a deeper look at what makes Snapchat stock worth a look at this time.
Strong Hold on Younger Demographics
One of the big reasons to consider adding shares of Snapchat at this time is thanks to the company’s ability to attract younger demographics. Snapchat has developed a popular social networking application driven by cameras on mobile phones, which naturally has attracted a lot of Millennials and younger age groups. Most of Snapchat’s 280 million daily active users fall into the 18 to 24 years old demographic, which is noteworthy for a few reasons.
We know how active younger generations are on their cell phones, which means that Snapchat is a dream for advertisers looking to reach them. The app has some truly impressive usage statistics that could attract plenty of interest over the long term from companies who are interested in reaching young individuals. According to the company’s Investor Relations page, over 5 billion snaps are created every day on average and the app is opened 30 times per day. This impressive usage tells us that Snapchat really has created something special that users are coming back to time and time again, which could show up in the company’s earnings numbers for the remainder of the year.
Ad Spend is Coming Back
If you aren’t familiar with Snapchat’s business model, it generates the vast majority of its revenue through advertising. During the pandemic, many companies had to cut back on their ad spend given the uncertainty of the circumstances. This hurt companies like Snapchat that rely heavily on marketers spending to put content on their platform, but things are looking up in 2021. Q1 were quite strong for Snapchat, as the company reported revenue of $770 million, up 66% year-over-year, and expects to deliver between $820 and $840 million of revenue in Q2.
This tells us that ad spend is coming back and that Snapchat is still benefitting from the shift in advertising from traditional media to online and digital media sources. Keep in mind that marketers are always looking for ways to sell their products and services to younger customers, but oftentimes struggle with finding the right way to connect with that age group. That’s the beauty of Snapchat, and the company should continue seeing strong ad spend for years as its users move into the valuable young adult demographic.
Monetization Opportunities Galore
When it comes down to it, buying a company like Snapchat means you are buying into the company’s future ability to further monetize its application. The good news is that the company has plenty of new ways to make that happen. Snapchat recently announced several new tools and monetization opportunities for creators that should encourage more people to post, which in turn can lead to additional top-line growth. There are also interesting things the company is doing with augmented reality that could lead to more monetization opportunities, including the company’s AR glasses called Spectacles and AR Lenses that are accessible on the company’s application.
The company has also partnered up with several high-profile publishers including NBC, New York Times, and ESPN to deliver custom content on its platform. If Snapchat can continue to develop those types of relationships, the app could turn into a true media powerhouse. Finally, if Snapchat’s management can figure out the best ways to monetize all of the user data it has, the sky is the limit for this company. Any updates on how the company is further able to monetize the application should help Snapchat enjoy a photo finish to 2021.