Snap Inc. (SNAP): A Bull Case Theory

Yahoo

07-05-2025

We came across a bullish thesis on Snap Inc. (SNAP) on Substack by LongYield. In this article, we will summarize the bulls' thesis on SNAP. Snap Inc. (SNAP)'s share was trading at $7.83 as of May 1st. SNAP's forward P/E was 36.63 according to Yahoo Finance.
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Snap Inc.'s Q1 2025 earnings show notable progress, with total revenue reaching $1.363 billion, a 14% year-over-year increase. The bulk of this revenue comes from advertising, totaling $1.211 billion, which grew 9% from the previous year. Additionally, the company's subscription service, Snapchat+, brought in $152 million, a significant 75% increase. This shift towards direct-response (DR) advertising, now representing 75% of ad revenue, marks a strategic pivot, although brand-oriented advertising revenue experienced a 3% decline. This decline in brand advertising signals potential challenges in upper-funnel demand, which could be a sign of broader macroeconomic pressures affecting advertiser spending.
On the profitability front, Snap made substantial improvements, narrowing its net loss to $140 million from $305 million in the same quarter last year, representing a 54% improvement. This was driven by higher revenues, reduced non-recurring costs, and gains from repurchasing $1.44 billion of convertible notes. The company also saw a 137% year-over-year increase in adjusted EBITDA, which reached $108 million, underscoring Snap's disciplined approach to cost management. Furthermore, operating cash flow of $152 million and free cash flow of $114 million reflect the company's solid financial position, with a trailing twelve-month free cash flow totaling $295 million. Snap's balance sheet shows a healthy $3.2 billion in cash and marketable securities, alongside a reduced debt load of $3.5 billion after issuing new senior unsecured notes.
Snap's user base continues to grow, with daily active users (DAUs) increasing 9% year-over-year to 460 million. The growth in the Rest of the World region was particularly strong, up 16% from the previous year, while North America saw a slight decline in DAUs. The company's monthly active users surpassed 900 million, marking a key milestone. Although global impressions grew by 17% year-over-year, Snap faced a decline in effective cost-per-mille (eCPM), down 7% due to inventory expansion outpacing demand. Despite these challenges, Snap saw a 60% increase in active advertisers, with small and medium-sized businesses (SMBs) driving this growth, which speaks to improvements in the company's advertising platform.