One of the great things about having tech-savvy children who are young adults is that it keeps me sharp regarding key trends.
It can really come in handy when scanning for stocks that offer us a play on big markets.
Indeed, this photo-based social media sensation even gave rise to the saying that, “the camera eats first.”
That’s an allusion to the fact that millions of young people take pictures of their food and beverages and then upload them to friends and contacts.
Don’t scoff. The stock has more than tripled the broad market’s return during the COVID Comeback.
And today I’m going to show you why this $22 stock still has so much upside ahead…
A New Kind of Camera Company
Now then, I really became aware of how embedded this app has become among young people a couple of years ago.
My wife and I took our daughters, Jordan and Kendall, on vacation to Cabo San Lucas, Mexico. We stayed at a five-star, all-inclusive resort that offered deluxe food and drinks.
I can’t tell you how many times we had to wait for them to take pictures of the dishes we ordered before diving in. From their excitement and determination, you’d have thought they’d never been to a nice restaurant before.
Such is the hold this app has on young folks today. At the time, the stock had not been traded for all that long and was choppy.
But today, on the strength of its recent financial results and the heavy use the app has gotten during the COVID-19 shutdowns and re-openings, it’s a much different story.
In other words folks, meet the “Snapchat Generation.”
Let me explain…
If you don’t already know, Snap Inc. (SNAP) is the parent company of Snapchat. It offers a mobile app for Android and Apple Inc.’s (AAPL) iOS devices used by young people all around the globe.
Though it’s not in the hardware business, Snapchat identifies itself as a “camera” company. That alone shows you how virtual the world has become for the firm’s legions of users.
They refer to “lenses,” which in reality are software filters for still shots and videos. And some of the company’s features enable augmented reality, again from the user’s own phones or Webcams.
Now that you are hip to the world of what I call Snap Speak, let’s drill down and take a closer look at this wildly popular operation.
Visual Social Media
With Snapchat, users can interact with each other by sending messages or pictures in a private or group chat. They also can do a live video chats and posts chronological “stories” for all of their friends and followers to see.
One of the features people really enjoy about the Snapchat app is the various filters one can use to change their appearance and lenses that show where they are in the world when “snapping” their content.
A newer feature is the “Discovery” area. It publishes short-form content from major entertainment or news outlets like Seventeen, The Daily Mail, Buzzfeed, and many more.
Arguably the most compelling thing about Snapchat, and something that is central to the app, is the temporary nature of the photos. Pictures or videos are made available to the receiver for only a limited amount of time.
But Snapchat does allow users to save their media in a private storage area by utilizing the cloud. In 2017, Snapchat signed a $2 billion, five-year contract with Alphabet Inc. (GOOGL) for their cloud services, making Snapchat Google’s largest cloud platform customer at that time.
Make no mistake. Snap operates a very sticky mobile-social platform.
Above I referred to the “Snapchat Generation”, allow me to explain what this is. The “Snapchat Generation” is primarily made up of two groups.
First, there are Millennials, who became adults at the turn of the century. Second is the Gen Z population, those born between 1995 and 2015.
Together, these generations have over $1 trillion in direct spending power.
Let’s take a closer look at each of these.
The Real “Snapchat Generation”
Coming in at 83.1 million strong, millennials are the largest generation in US history. They are expected to drive over half of the increase in expenditure growth over the next decade, according to Fundstrat.
And with Gen Z, the forecasting firm Cassandra states that this demographic has $323 billion in direct buying power and $1.2 trillion in indirect purchasing power.
Gen Z is still developing its brand loyalty. This is very attractive for advertisers who focus on building lifetime value.
And Snapchat already has a strong foothold on both. Some 90% of the US population aged 13 to 24 and 75% of the US population aged 13 to 34 use the app.
With 229 million daily users on average, the app reaches more 13 to 24-year-olds than Facebook or Instagram in the US, UK, France, Canada, and Australia.
Snapchat is also one of the most-used “cameras” in the world. On average, there are over 4 billion snaps created every day.
This high-frequency camera usage powers the app’s AR platform. AR “playtime” reaches an average of over 500 million minutes every day.
And Snapchat’s AR platform is one of the many creative ways the company pushes out ads to users.
In addition to the AR lenses, there are three more ways for clients to reach Snap users:
- Snap ads that come up between stories users are clicking through
- Story ads that are posted to the discovery page
- Filters that include paid messages.
A Digital Turnaround
I first wrote about SNAP back on February 16, 2017, when the firm was getting ready to go public. I argued that as a new issue, it would lose value. And in fact, it declined by 75% through December 16, 2018.
But I’m recommending it now on the strength of its earnings turnaround that is driving a strong uptrend.
Since the S&P 500 rebounded on March 23, it’s gained nearly 40%. But SNAP bounced back five days earlier and is up just shy of 150% since then.
Then again, Snap posted a 20% increase in per-share profits in the most recent quarter. That’s actually 33% higher than Facebook’s three-year average.
If all SNAP did was get to 20% of Facebook’s $236 price, we’d see a 125% gain from here.
This is one of those stocks where it will pay to buy on dips and invest for the long haul.
Cheers and good investing,
Michael A. Robinson
Source: Strategic Tech Investor