Tiger Securities: Can Snaps benefit from TikTok and Facebook being boycotted?

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The social media Snap, which focuses on "burning after reading", released the financial data of the second quarter of this year after last night's trading. Unfortunately, although the revenue of this quarter exceeded the market's expectations, the net loss was still expanding, and the number of users grew less than expected. The stock price fell 11% in the after trading market.

The revenue is growing, the profit is roaring, and the number of users is high!

In the second quarter, Snap's operating revenue reached $454 million, up 17% year on year, exceeding the market expectation of $442 million.

The double-digit growth was achieved in the adverse circumstances of the sharp decline of GDP in the second quarter of the United States and the reduction of spending by advertisers, which can be called commendable. However, compared with the 462 million revenue in the first quarter and the 44.4% year-on-year growth rate, the epidemic hit Snap, which relies on advertising revenue, hard.

To make matters worse, Snap increased revenue without increasing profits, and the net profit loss continued to increase. In the second quarter, the loss increased to 336 million from 255 million in the same period last year, an increase of 28% year on year. Even if calculated according to the adjusted EBITDA, the range of losses still increased.

From the perspective of quarterly net profit trend, Snap's efforts to reduce the loss in 2019 failed, and investors had to become more patient with their earnings expectations.

In terms of cost splitting, Snap's operating cost in the second quarter was 250 million US dollars, up 16.3% year on year, which was similar to the growth rate of revenue. It reflects that while revenue growth slows down, operating costs cannot be reduced in the same proportion;

In terms of R&D expenditure, it spent 261 million dollars in this quarter, with a year-on-year growth rate of 10.6%, which was well controlled;

In terms of marketing expenses, this quarter spent 132 million dollars, up 17.9% year on year, slightly higher than the growth rate of revenue;

Management expenses, namely general and administrative expenses of $121 million, showed negative growth year on year and month on month. The management made great efforts to control costs, but unfortunately, the management expenses accounted for only 16% of the cost items.

In terms of the core indicator DAU, 35 million new users were added in the second quarter, up 17% year on year, reaching 238 million. From the growth point of view, DAU has maintained a rapid growth thanks to the epidemic.

However, this figure is slightly lower than the market expectation of 238.5 million, which is not significant from the perspective of difference. However, in the teleconference after the financial report, the management predicted that the daily active users in the third quarter would be between 242 million and 244 million, with a year-on-year growth rate of 15% to 16%, and a month on month growth rate of only 5 million in the second quarter.

This figure obviously does not satisfy the appetite of Wall Street.

In terms of average revenue per user (ARPU), the ARPU in the second quarter was $1.91, unchanged from the same period last year.

The investment research team of Tiger Securities believes that, on the whole, Snap's second quarter financial report is obviously lower than the market expectation, and it is difficult to match the 97.56% increase in the second quarter.

Give a slap for a sugar

Perhaps the management also realized that the financial report was not bright enough. Although the style of the first quarter was continued in the financial report, emphasizing that due to the impact of the epidemic, the revenue or adjusted EBITDA of the next quarter would not be predicted, Derek Andersen, the chief financial officer, said in the financial report meeting, "Up to now, we expect that by the third quarter, the revenue will increase by 32% over the same period last year."

Although this figure lags behind the previous growth of about 40%, it is much better than the second quarter.

In the financial report of the second quarter, some data are also quite eye-catching. For example, the daily average number of people over 35 who use Discover has increased by more than 40% year on year; On average, more than 180 million users use augmented reality every day, accounting for 80% of the number of daily live users, up from 75% in the first quarter.

The investment research team of Tiger Securities believes that although the efforts of Snap have enhanced the user experience, for Snap, which relies heavily on advertising revenue, it is good for the economic environment to grow this year.

From the perspective of competition, Tiktok, which shares the same user base as Snap, is facing a potential US ban. According to the current form of China and the US, it has become an irreversible trend to suppress Chinese enterprises. After the news of the ban, analysts in the United States have raised the target price of Snap. After all, for the advertising business, there is a strong competitor missing, and the competitive pressure of advertising display fees per thousand times is greatly reduced.

In addition to Tiktok, Facebook is also a divine assistant. In the black movement, Facebook has long allowed racist, violent information and false content to spread rampant on its platform, causing strong resistance from advertisers. Up to now, hundreds of brands from all over the world have become participants in this boycott, including Coca Cola, Unilever, Levi's, Lulemon, Ford, Honda, Adidas and other well-known brands.

The investment research team of Tiger Securities believes that these advertisers who originally belonged to Facebook will obviously not stop promoting, but are likely to flow advertising expenses to Facebook competitors such as Snap.

Summary:

The investment research team of Tiger Securities believes that the share price of Snap has plummeted after the delivery of a less impressive financial report. Looking forward to the third quarter, Snap is also mixed.

After the stock price more than doubled from this year's low point, the valuation of Snap is significantly higher than that of Facebook (FB), Pinterest (PINS) and Twitter. Whether it can digest such high valuation still needs Snap to be able to retain more users who are "lucky" because of the epidemic.

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