Snap Inc.’s stock jumped after the company told its investors to expect annual growth rates of around 50% for the next several years, The Information reports.
Why It Matters: Evan Spiegel’s company is largely betting on new ad formats and potential monetization of other sections of the app to drive growth. It’s a lofty goal, but Wall Street is bullish on the company’s growth prospects. This all comes not three years after a time when Snap was trading around $5 a share and “questions were swirling about the social network’s ability to grow users, lower costs, and one day turn a profit.”
- Snap’s stock rose by around 11% to a record high of $70 on the announcement.
- The company still hasn’t hit profitability, but did report a slim profit last year “before charges like interest, taxes, and stock compensation.”
- CFO Derek Anderson said Snap is “committed to achieving profit on an adjusted basis this year despite its plan to grow expenses yearly from around 25% to the mid-30s in 2021.”
What’s Next? Investors are flocking to Snap’s impressive growth rate for revenue and new users, especially in India. It also has yet to place ads in its TikTok rival, Spotlight, which has 100 million users, or its maps tab that is used by more than 250 million people each month.
- Evan Spiegel also said Snap is betting on augmented reality as the “next major shift in computing.”
After a four-month tear, $SNAP stock is now trading at 50.4x forward Gross Profit, which seems like a valuation that is fully baked if they are growing at 50% per year. I believe there are better high-growth deals in the market with growth that is less affected by fickle mobile usage post-pandemic.