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That said, Snap has a large, valuable, and highly engaged user base that occupies a unique space in the demographic (Exhibits 7/8). That engagement generates high value advertising inventory that should allow Snap to follow the now well-worn path of mobile monetization. While the public market has no recent experience valuing an internet company at this early a stage, at this scale, we believe the opportunities from growth in users, engagement, and monetization more than offset the considerable risk inherent in what is essentially venture investing through public equity. Therefore, we initiate coverage with a Buy rating and a 12-month target of $9. | That said, Snap has a large, valuable, and highly engaged user base that occupies a unique space in the demographic (Exhibits 7/8). That engagement generates high value advertising inventory that should allow Snap to follow the now well-worn path of mobile monetization. While the public market has no recent experience valuing an internet company at this early a stage, at this scale, we believe the opportunities from growth in users, engagement, and monetization more than offset the considerable risk inherent in what is essentially venture investing through public equity. Therefore, we initiate coverage with a Buy rating and a 12-month target of $9. | ||
Key Investment issues | |||
'''User growth:''' Snap’s ability to maintain and grow its audience will be the key determinant of valuation for the company, in our opinion. Currently, Snap’s 158mn daily active users are highly engaged visiting the site 18 times daily for an aggregate 25-30 mins on average. That said, user growth decelerated materially in 2H16 (Exhibits 28/29) as competitive offerings and execution issues at SNAP impacted new user additions and engagement, though we have seen early signs of reacceleration (Exhibit 11) despite competition from larger social platform intensifying. While we believe Snap’s differentiated offering of creative content that disappears after viewing (ephemeral content) by the individual or small group it is shared with encourages a frequency of casual engagement that we believe will be difficult to replicate on other platforms known for storing life’s most treasured moments and sharing them with larger more public audiences. | '''User growth:''' Snap’s ability to maintain and grow its audience will be the key determinant of valuation for the company, in our opinion. Currently, Snap’s 158mn daily active users are highly engaged visiting the site 18 times daily for an aggregate 25-30 mins on average. That said, user growth decelerated materially in 2H16 (Exhibits 28/29) as competitive offerings and execution issues at SNAP impacted new user additions and engagement, though we have seen early signs of reacceleration (Exhibit 11) despite competition from larger social platform intensifying. While we believe Snap’s differentiated offering of creative content that disappears after viewing (ephemeral content) by the individual or small group it is shared with encourages a frequency of casual engagement that we believe will be difficult to replicate on other platforms known for storing life’s most treasured moments and sharing them with larger more public audiences. |