Dec 31 2020 - Snap: Path To 0 Billion Underway, Upgrading To Buy

Summary

• SNAP shares are trading ~/share, a market cap of ~ billion, making it one of the largest publicly traded social media platforms out there.
• SNAP's success of late has been astonishing, but well grounded. The company's stock has skyrocketed off the back of both strong monetization and user growth, combined with multiple expansion.
• In order to succeed in digital advertising, you need a unique value proposition for advertisers. SNAP has just that.
• SNAP's biggest hurdle will be growing the platform's monetization outside of the lower engagement Discover platform. SNAP already seems to be making inroads on this, particularly with Stories ads. The question is, can monetization improve drastically enough to sustain valuation?
• I believe so, and that there is even more upside to this story. Upgrading from Hold to Buy, raising PT from to .

Snap's Incredible Move

Snap (NYSE:SNAP) has been one of the best performers in tech since the March market bottom. The company's steadfast execution on both the user growth and user monetization front have been impressive to say the least. This has led to a staggering increase in the stock's value.

The sixfold increase has been fundamentally justified, but the question remains: where do we go from here?

I've covered Snap as a bull, a bear, and in between. At this point, with the narrative and fundamentals where they are, it's hard not to be bullish. That said, I feel like that is already being priced into the valuation. We'll work through the valuation dynamic later. Besides, let's not forget the reason for Snap's massive turnaround: the Android refresh.

Android Refresh Spring-loads ARPU and User Growth

For those who are new to covering Snap, for the first couple of years after the company's IPO, they were stuck in the mud trying to redesign and revamp their Snapchat product on the Android operating system. The biggest drawback of using the app on Android was ridiculously high power consumption/battery drain as well as glitchy performance. This led to a poor quality of performance for Android users. This meant for the first couple of years post-IPO, Snap's focus was on polishing a very poor-performing Android app. This meant that the company had to solely rely on its core domestic iOS user base to generate any growth. This was problematic however, as iOS is the primary operating system of the more developed Westernized world. At this point, growth in the Western world was stagnating, as was evident by Snap's decelerating US and Europe DAU growth.

Essentially, Snap was internally hard at work to update the Android platform, while riding an ever-descending iOS and domestic wave. As the wave began to crash (user saturation in the West/iOS), Snap's user growth slowed. As user growth slowed, network effects died off, and users on the iOS side began leaving the platform. All of this snowballed into a perpetual decline story, which likely spooked advertisers.

The key reason advertisers were spending on Snapchat was not it's in-depth analytics or targeting tools (of which there were none really because the ad platform was so young), but the coveted Generation Z user demographic over which Snapchat had so much reach. As these users left for Instagram, Snapchat appeared to be slowly dying off in popularity, meaning its value proposition for advertisers was dying off too. Combine this with the disruption of moving from sales-based ad selling to real-time bidding, and you have a short-term disaster on your hands, monetization-wise.

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The Snapback: All of this, at the time, made the stock a big short selling target, and set up some very easy y/y comps. That said, the argument could be made that the valuation was still high for what the Street regarded as a busted growth story. In addition, Snap (at least at this point in time) was inconsistent about beating analyst expectations, even with comps as low as they were.

Over time however, Snap started to deliver. The fundamentals of the business were improving as monetization expanded and the user base stabilized. And yet, short sellers stuck around, and the stock was range-bound.

Eventually, the stock caught up to the fundamentals as management executed on both user growth and monetization. A management team that previously seemed undisciplined and inexperienced, righted their ship. All credit to them. That said, they have been riding the Android update and Covid tailwinds for user growth. Monetization-wise, their transition to auction based sales has seemed fairly fluid, and has enabled strong ARPU growth. The stock has certainly reflected this in its recent run. While fundamentals have run-up, so has valuation.

So, where does the company and the narrative go from here? Up, at least in this writer's view.

Big Brands Like Good Lighting

Back in June, in the very tense political climate, we saw something incredible happen. Facebook (NASDAQ:FB), one of the largest advertising behemoths on the planet, saw serious backlash. Facebook is no stranger to controversy. It has always seemed that they were fairly immune to controversy. A controversy would come up, executives would testify before Congress and get scolded by clueless congressmen who don't understand what Facebook really does. Then, the stock would drop, #DeleteFacebook would trend among woke "activists" on Twitter (NYSE:TWTR) for a couple of days. Then, when we saw that neither users nor advertisers really left the platform, everything would go back to ho-hum. Rinse and repeat. At this point, trying to keep up with Facebook PR debacles has been like trying to keep up with our growing deficit. This rinse and repeat cycle seemingly changed in the summer, when Facebook came under fire from internet users over its "hate speech" policy. This time was different.

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The #StopHateForProfit movement quickly gained steam, with over 1,000 companies boycotting advertising spend on the Facebook platform. At the time I theorized that this was nothing more than a PR move from big brand advertisers to score social brownie points with young "woke" consumers. Even if advertisers return to Facebook in full, the boycott reveals something big that the Street seems to be missing.

These users that the advertisers were trying to appease are young, socially conscious users. This is the exact demographic that Snapchat targets. This means that brands will be able to pull ad dollars from a controversy-riddled (yet high ROI) platform like Facebook, and plop them down in Snapchat while still appealing to that core demographic, and still putting their marketing budgets to use in something that can generate a good amount of ROI.

While the political buzz has died down, and many brands have likely moved ad spend back to Facebook (it still is the most effective social ad solution after all), has Snap seen a benefit? Definitely. Companies trying to score points with younger, more socially conscious consumers are more likely to buy ads on the Snap Ad platform. And why wouldn't they? This is the exact demographic that will be driving purchasing trends for years to come.

In addition, Snap has a unique non-intrusive strategy for appealing to both advertisers and users. With Facebook and other social media platforms like Twitter, ads feel "in your face" and intrusive, with the brand trying to cram as much data about their product in the smallest amount of space possible. This inherently means the user will have a negative attitude towards ads. Snapchat turns this dynamic on its head. With the surge in popularity of augmented reality (thanks in large part to Snapchat), users can now have fun with ads. Sponsored AR filters on your Snapchat camera can create a fun experience, while the brand also gets its advertising value. This removes the intrusiveness of other platforms, while still maintaining a positive experience for the ad buyer. Yet another reason that advertisers will likely move ad dollars to Snap over the long haul.

The Attention Story: Snapchat Vs. TV (Hint: Snapchat Wins)

Covid has been a major disruption factor for better or for worse in every industry on Earth. In the tech world, this disruption has generally been for the better, as companies and consumers move online to accommodate social distancing and lockdowns. Snap has been no exception.

As the virus spread, and the lockdowns followed, one of the biggest forms of media used by advertisers, the television was massively disrupted. Movie studios slowed or even halted production, cord-cutting trends accelerated as consumers looked to reduce expenses, and most importantly, sports were mostly shut down. This meant that for a few months, there was no real reason to turn on TV. Sure, there was the news, but even Twitter and Facebook have disrupted the way millions of people get news. The lockdowns disrupted TV, and more importantly, TV advertisers. The TV advertising market in the U.S. alone is worth ~ billion. This market is massive, and because of Covid, was quickly being disrupted.

You see, the advertisers that were not scaling down budgets as a whole, were moving their budgets towards where the eyeballs were. TV engagement crashed, but digital engagement skyrocketed. Advertisers still needed to generate ROI, so brands that have used TV for years (if not decades) started playing around with digital ads. What you have to understand is that within digital advertising, there are numerous subsegments: social media, search, video, banner, etc. Social media is the segment that Snapchat operates in, along with platforms like Twitter and Facebook. Social media has been one of the faster growing segments of digital for two reasons: targeting and engagement. For years now, Facebook has been the leader in social media advertising because it has had a massive amount of targeting and engagement. Understand the Facebook use profile: Facebook owns three billion plus user platforms (core Facebook, Instagram, WhatsApp) with a massive amount of individual data on each of their users. Their spending habits, deepest thoughts, communications with others, who they follow, etc. Facebook has all this, and trains targeting algorithms on their user data to mine the best insights to sell to advertisers. In turn, Facebook is now one of the largest companies on Earth. This could be in jeopardy long-term, but I'll save that for another article. What you need to understand is that Facebook is the 500 pound gorilla in advertising.

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Facebook has been around the longest, has the best tools for advertisers, and is generally the most reliable platform in social media for advertisers. This is why despite the loss of ad spend from the aforementioned ad boycott, Facebook still managed to beat expectations handsomely. You might be saying, ok, I get it. But this is a Snap article, why are we talking about Facebook?

I am using Facebook as an example to prove a larger overarching point. The transition from legacy media-based advertising and to digital/social advertising is here. Generally speaking, social media advertising is just better than offline advertising. Why? A few reasons: knowing demographics, tools, ROI comprehension, data advantage/targeting, customizable/flexible budgeting, easy to build, hard to "change the channel".

First of all, when you are buying an ad to run on the air during a commercial break in a TV show, you have a general idea as to who the target of your ad is. The network might have a general idea about who is watching the show, and advertisers might select specific ads to target during the show, but you are still making an educated guess, taking a leap of faith so to speak. You are throwing darts at a dart board with your eyes half shut. Ok, I'll stop with the analogies, but you get the point. Without knowing your demographic there is a risk that your content just isn't going to land with the end viewer.

Second of all, social media advertising platforms have more tools to use to target your specific needs. They have more tools, with greater precision, because they have an exponentially larger data set to work with on the end customer. They have tools for customizing pinpoint demographics, interests, what content you tend to engage with over others. When you have more data with more precision, you can craft better tools around it.

Third, understanding how much return on your investment you got is much easier online than it is offline. The reason is fairly simple, direct-to-consumer is almost non-existent offline, and it is omnipresent online. It is very hard to gauge how well your ad performed in terms of generating raw sales for your business when you are operating on an offline channel. Online, the direct-to-consumer angle is easily measured. When you click on the ad and make a purchase from the app, you have a reliable readout of how effective the ad was. Essentially, online advertising has more transparency than offline.

The next reason that digital is asserting its dominance over traditional media advertising is the data advantage and targeting ability. On a social media platform, virtually everything is logged, stored, and analyzed. Data and trend analysis is so much more in-depth online than it is on offline channels. You can simply get better insights about your target audience online than you can offline. This enables better and more accurate targeting of your ad placement online, versus throwing an ad against a wall and hoping it sticks offline.

Customizable and flexible budgeting is a part of digital advertising that few fully appreciate. When you want to buy airtime on local TV, you don't have the ability to buy worth of airtime. What if you are a small business trying to scale, and you need to market your product? You aren't going to spend thousands of dollars if not more on airtime alone (never mind production costs, more on that later) to reach an unknown demographic. It would be far more efficient to make targeted posts on Facebook or Snapchat to drive a select audience to your business. Customizable and real-time bidding allows you to nibble at ad placements, rather than be forced to take on a massive gamble on a TV spot. A TV spot may make sense for a company with a fairly large marketing department, but not for a small business trying to get off the ground and running.

The next big differentiating factor between online and offline ad sales is how little time it takes to build out an ad. When you are making a TV ad, there is a much longer production process. You need producers, a script, directors, lighting crew, etc just to build out a small ad run. With online ads, the platform generally provides you with the tools to build your own unique ads and send them out to a target demographic. It doesn't take a massive workforce to build out an advertising operation on the web like it does offline.

And finally, there is what I call the "change the channel" factor. On TV, skipping ads is quite easy. At the press of a button on your remote, you can easily change the channel on your TV to avoid ads. While this isn't impossible with social media advertising, it is much harder to do, as many ads are simply unskippable if you want to view content on the platform. This means the odds of your ad being viewed by a user of the platform are even higher because people are unable to cheat their way out of viewing the ad as easily.

For all of these reasons, I believe a long-term rotation will happen away from the + billion TV ad market and towards the fast-growing and high ROI social media advertising market. Covid was the trigger for traditional marketers to test the waters on other platforms, now we have to wait and see how much churn away from TV ads there is.

Snap Map, Stories, Filters and Discover: The Monetization Roadmap

Now that we understand social is one of the most compelling advertising mediums, what would positively differentiate Snapchat from the competition? Well, let's try to understand the current monetization roadmap for Snapchat. There are three parts of the platform that I believe will be lucrative for advertising over the long-term: the Snap Map, Stories, and Discover. Right now, Discover seems to be one of the largest drivers of monetization on the Snapchat platform, while Stories and Snap Map are yet to be monetized. Let's break each part of the monetization story down starting with Discover:

Discover: The first part of the platform, and the one that has gained the most traction monetization-wise to date has been Discover. Discover also happens to be the least engaged part of the platform. You see, at the core of the Snapchat platform is the camera and the messaging. if you want to view a friend's "story" you swipe towards the Discover page. On this page, there is sponsored content and commercials. While Snap has seen improving engagement, I don't believe this is going to be the avenue that leads to the big monetization boost longer-term.

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The reason for the lack of monetization runway here is simple: nobody really cares. The core functionality of Snapchat is to communicate with friends, not to view sponsored content on the Discover page underneath your friends' stories. This is why as much as Snap may end up spending on exclusive original content, it doesn't fit their platform and has a fairly short runway for monetization. That said, it appears Snap's monetization strategy is built around Discover as of now. In my view, over reliance on Discover will do more harm than good long-term for the monetization trajectory.

Snap Map: The next part of the monetization story could be the most exciting yet untapped part. In the Snapchat app, if you enable it, your precise location is displayed on what is called the Snap Map. All of your friends who have their location turned on on their device have the Snap Map open. Right now, this opportunity seems untapped.

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Imagine the use case for a small business with Snap Map. Let's run a hypothetical. A teenager on Snapchat is bored, and is looking for things to do. They open their Snap Map and see what their friends are up to, and an ad pops up for a small pizza parlor a couple of blocks away. This interests the teen so he/she books a table and has a pizza. It's as simple as that, and this is the most likely angle small businesses will turn to for advertising on the platform. Using Snap Map as an inspiration engine so to speak could be very beneficial for advertisers. The Snap Map monetization runway is incredibly long, and is currently very under penetrated as a growth avenue. We'll talk more about Snap Map when we get to the next segment, but keep it in the back of your mind for now.

Stories: The next avenue for monetization expansion is Stories. This is a more uniform format of growth, not unique to Snapchat specifically. But this format is growing, and a rising tide lifts all boats. Promoted stories or unskippable stories between the viewing of your friends' stories could present a unique monetization opportunity. As a matter of fact, both Snap and Facebook are already moving in on this opportunity. I would anticipate this to be a more steady ad product used by all kinds of businesses ranging from mom-and-pops to big brands as the format gains more polish. The runway here isn't massive and unique like Snap Map, but it is enticing.

Filters: And finally, we have to look at filters. While the user base uses filters to goof around and make silly faces, the underlying trend is much more surprising than you may think. As I already mentioned, in today's day and age, brands care quite a bit about their image among younger user demographics. That's part of why we had the #StopHateforProfit movement with Facebook. Filters are an inherently fun piece of technology that elevates the user's perspective. It creates feelings of positive emotions when you layer an AR (augmented reality) experience over the real world. Brands who are conscious of the value of their brand might create AR filters to associate positive experiences between users and the product advertised. This is one of the few advertising offerings ever that could leave the user emotionally higher than before they saw the ad. That said, building AR ads could be cost-intensive, and until low-cost tools are given to smaller advertisers, broad scaled small business rollout is unlikely. This means that while the runway is not short, it isn't long or compelling at this point in time.

Snap's Holy Grail and Ultimate Challenge: SMB & International

Now that we understand the monetization runway, we need to address the comps. The elephant in the social media advertising room is Facebook. For comparison, Facebook monetized at ~/DAU annually in 2019. And considering that the bulk of Facebook's future growth is going to come from ARPU expansion and not user growth, this number can go up. In comparison, I'm projecting ~.48/DAU in ARPU this year. So, how does Snap close this gap and monetize at Facebook levels? They have to conquer two challenges in order to close this gap.

SMB: The first challenge Snap must conquer, is the small business challenge. As time goes on, small businesses are going to realize how much they need to gain access to this young yet influential demographic. The question is, how does Snap give the tools to small businesses to target the user base? In my view, the two most likely formats that small businesses will use on Snapchat will be the Stories format and the Snap Map. If Snap can make AR development tools more widely available to smaller advertisers, then AR filters could become a reality too someday. Snap has already begun to make their ad platform more compelling for small businesses by moving to an auction-based, automated ad selling platform rather than employing a massive sales team. This is the first step of many that Snap will need to take to expand to the critical small business segment. This is a very large part of why Facebook has become so successful in monetizing its platform. Timeline ads have greater a high-engagement, simple, and high-ROI way for small businesses to advertise. Without SMBs, Snap simply can't replicate Facebook's success.

International: The other component of Snap's monetization strategy is expanding their international presence closer to their domestic presence. This is something that Facebook has been able to do, with their international user base being monetized somewhat close to the rate of the domestic user base. With Snapchat, it's going to take two things: time and execution. Rome wasn't built in a day, and neither will Snapchat's international ad business. It's going to take time for Snap to scale up their international presence, but they're going to need to execute to get to Facebook levels.

Huge Market To Attack

With all these advancements taken into consideration, we need to understand the market opportunity for Snap. Snap has been attacking one of the largest markets on the planet, the social media advertising market. In order to understand how big of an opportunity Snap has, we have to understand the size of the addressable market. In social media advertising, this market is massive, and quickly growing. Social media advertising can be divided between mobile and desktop. Snapchat is a mobile platform, so we have to exclude desktop spend from the overall market.

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Based on these numbers, Snap has currently captured ~2.5% of the mobile social media advertising market. If Snap can properly execute in making good offerings to brands, direct-to-consumer, and SMB advertising, I can see a long-term target market share of ~10-15%. Keep in perspective, for 2025 I'm projecting revenues in the neighborhood of ~.3 billion in 2025, which is a ~8.2% market share. Considering the fairly small number of players in this space, Snap has a lot of market share upside potential.

Optionality: Gaming/AR/Commerce Etc.

There is a feature of optionality to the story with Snap. Many who have followed this stock are aware of the Spectacles debacle. Snap's seemingly failed attempt at creating camera glasses has been the most evident attempt of diversification away from ads. That said, more fruitful attempts at diversification could play out in the coming years. Namely, augmented reality related gaming experiences within the Snapchat app, as well as an eCommerce platform. Let's not forget, when Snap saw high-levels of executive turnover a few years back, one of the key additions was long time Amazon veteran Tim Stone to the CFO role. So, leveraging the Snapchat platform for eCommerce is definitely not out of the picture long-term.

More likely however is a push from Snapchat to bring gaming closer towards the forefront of the platform's experience. This could turn Snapchat into the American equivalent of Tencent (OTCPK:TCEHY). Keep in mind, Tencent is valued at ~0 billion, and at its core is a social media/gaming platform, with its tentacles invested in other places as well. Snapchat following the lucrative Tencent model could set it up for tremendous upside.

Finally, there is augmented reality technology itself. Could Snap utilize its pole position in AR technology to make a big hardware/software push? That could unlock a tremendous amount of upside as well. Keep this optionality in mind when we discuss my valuation of the stock.

The Path To 0 Billion Plus

As of the time of writing, Snap is trading at ~/share for a ~ billion market cap. If you look at it on 2021 or even 2022 numbers, the stock looks quite rich to say the least. The question is, can Snap grow into this valuation over time, or an even greater valuation? In my view, the answer is a resounding yes.

The model I base my price target on goes out to 2030, a decade from now when Snap is likely reaching its maturity as a both a platform and as a company. By 2030, the company is likely witnessing slowing user growth, and monetization of the platform is near its peak. The premise of my model is answering the following question: What is Snap worth in 2030, and what will it be worth in a year's time? Let's take a look at my expectations for Snap in 2030.

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Starting with user growth, I anticipate Snapchat scales from its current standing of 249 million DAUs (end of Q3) to 469 million DAUs, a growth of 220 million users. This growth will be mostly fueled by Android and emerging markets expansion over the coming years. Currently Facebook's ratio of international users to domestic users is 8:1. Right now, Snapchat is at a ratio of roughly 2:1. As you can see, if Snap is going to scale user growth, it has to come from international, where the main mobile operating system is Android. In 2021 however, I would note that I anticipate Snap to experience a drastic deceleration in user growth as the global lockdowns ease and users return to somewhat of a normal life. This is part of why I am below the Street on my 2021 expectations. This assumes that over the course of the next decade, users will grow by ~88%.

The more important part of the growth story is ARPU. By 2030, I predict Snap will hit .97/DAU in ARPU. Keep in mind, this is still short of Facebook's 2019 monetization level of ~/user. As Snap expands its product portfolio and targeting offerings, anticipate continued monetization improvement. Also, note that Snapchat is still in the early innings of building out their audience network as a part of the overall SnapKit tool. Audience network is part of what drove Facebook's ability to target users so effectively for so long. Now, Facebook Audience Network has come under fire, and they are shuttering. Snap's expansion into using Snap Ads cross platform could be a key long-term revenue generator for the company that enables this staggering ARPU growth that I'm projecting.

With these two numbers in mind, what will Snap's revenue be in 2030? Based on these two input assumptions, I'm projecting Snap scales to a revenue of .733 billion. Keeping in mind that 10-15% social media advertising market share figure previously discussed, Snap is in that ballpark. And that is assuming that the social media advertising market stops growing after 2025. Obviously, social media advertising will continue to grow, and as long as Snap continues to execute, there is no reason they can't continue to take share.

Now, let's talk margins. Margins are incredibly important, especially for high-growth stories. The reason is, eventually the company has to become profitable. When it comes to gross margins, the key expense Snap incurs relates to infrastructure costs. You see, other platforms may build out their own in-house cloud infrastructure, but Snapchat outsources, tying themselves up for years. As long as revenue per user continues to scale up, then the gross margin profile will too scale with it. For this reason, I'm projecting that Snap can get to Facebook type of gross margins at ~82.8% in 2030. Operating margins wise, the only good comp in this space to think about is Facebook. Right now they're looking at ~35% operating margins. I expect Snap can hit ~54.4% operating margins in 2030 when they're at scale. Why? Facebook's margins are so low because they have a massive international workforce that they plan on growing, and massive costs related to content moderation. This is creating a huge uplift in both SG&A and R&D which has led to operating margin contraction. Snap simply doesn't moderate content on the platform like Facebook. They don't have to incur these costs because the platform is just structured differently. As a result, I see continued OpEx growth, just at a slowing rate as time goes on.

If we apply a fair tax rate of 25% to 2030 GAAP operating income, and assume a share count of 1.485 billion shares (per Snap's Q3 report), then operating leverage trends would dictate earnings power of .18/share. Essentially, I'm projecting Snap scales to .18/share in earnings by 2030. Now we have to determine a fair multiple.

For this valuation, I'm going to use an earnings multiple of 25x. Here's why: This implies a ~4% earnings yield in 2030, versus the ~1% yield you would get on a ten year bond today. While rates are probably going to move higher by 2030, and this gap will close, you have to understand the story. Snap is a high margin tech stock, operating in a massive and continually growing industry. Keep in mind, this model only takes 10-15% market share of the total social media pie. What if Snap can scale into even greater share? Not to mention, Snapchat users are a coveted demographic. If investors want exposure to younger demographics, Snap might be a name they look at. All of these reasons and more, lead me to the 25x multiple. This means that by 2030, Snap should be valued at 9.41/share. That's all well and good, but my price targets are based on 12-18 months out. So, while the stock might be worth 9 in a decade, what really matters is what it's worth at the end of next year. So, we have to discount back to YE2021 valuation.

So, what discount rate to use? My discount rate is WACC (weighted average cost of capital). The first part of WACC is the cost of equity. Assuming a beta of 1.02, a risk free rate (10yr yield) of 0.936%, and an equity risk premium of 4.97%, we come to a cost of equity of ~6.01%. Now, factoring in a cost of debt of 4.04%, a tax rate of 25%, and a total debt load on Snap's balance sheet of .978 billion, we come out to a weighted average cost of capital of 5.93%. This is our discount rate.

Discounting back our 9.41/share each year until we reach YE'2021 brings us to a valuation of .64/share. Thus, my price target on shares of Snap is , reflecting an upside of ~50%. For this reason, I am upgrading from Hold to Buy, and raising my PT from to , entailing a market cap of 0bln+.

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Risks: Valuation, Fickle Users, Discover Reliance

As long-term holders of this stock know, there is no name without risk. Snap has been a name prone to risk since its IPO, and even with the execution we have already seen, there is still an element of risk to investing in Snap. The first risk is the valuation. What if Snap doesn't execute on the monetization or user growth fronts long-term? Well, there isn't much margin of safety when the stock trades at ~23x next year's revenues. If things do not play out well, expect a massive and heavy correction in the stock downward, because there is no room for error.

The next risk is the risk of churn within the user base. Those of us who have covered this stock for years know just how fickle younger Snapchat users can be. We witnessed it with Instagram, when Instagram copied several key features and took users away from Snap. While I believe that Snapchat has differentiated itself enough (new filters, new parts of the page, greater ephemerality) there is still the risk that another platform steals Snap's thunder. That said, I believe this risk has diminished significantly. TikTok became a hit app months ago, and we saw no diminishment in the user base or loyalty to the platform. Snapchat has carved out its own unique use case. I wouldn't expect significant user churn with a wave of new hit apps. Snap has finally differentiated itself.

The final risk Snap faces is its reliance on the Discover platform, as I already mentioned. The Discover platform has been Snap's oldest and most reliable form of advertising, but it isn't scalable. It's basically big brands and promoted content being pushed in the face of users who are (for the most part) uninterested. It isn't really scalable to small businesses, and is against the core of why Snapchat users use the platform. If Snap can't pivot towards Stories, Snap Map, etc. for bringing in advertisers, I would anticipate monetization upside to plateau.

Conclusion

In conclusion, Snap the company has never been stronger. The stock has also never been stronger. This has led to incredible multiple expansion and valuation expansion. And yet, when you look at the long-term trajectory of this company, I think we're just getting started. In my view, Snap's path to 0 billion+ is underway. This is merely the beginning.

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