Despite the strong revenue growth, expenses are barely growing less than 10%, allowing losses to shrink from around -320mil to -230mil. The ARPU growth is the primary reason why revenue growth accelerated to around 50%.Īs for profitability, strong operating leverage continues to improve profitability substantially. To give Snap some credit, even though their user growth has been abysmal for such a small company, they have been able to monetize their current users very well, growing ARPU 33% YOY. Even after all the improvements they have made, DAUs are growing quite slowly, with YOY growth of only 13%(In comparison, Facebook, which is far larger, is growing at around 8.5%). The effects of fierce competition can clearly be seen in Snap's slow user growth. Secondly, Snapchat used to be one of the few ways to reach teens, but if more channels of advertising emerge that could serve this purpose, it would take away some of Snap's ad budget. The problem for Snap is twofold - Firstly, users may start spending time on other apps, reducing Snap's ad inventory.
And of course, Facebook's own apps continue to sit atop the download charts. It is very likely that this app is just a fad, considering it has gone viral before, but considering it's used for photo editing, it could definitely reduce time spent on Snapchat. If you look at the chart above you'll notice that FaceApp, which allows users to edit photos of faces, is also making a comeback.
Short video apps are not the only competition. So are short video platforms a fad? While its hard to say for sure, Tiktok downloads have remained stable from Q3 2018 to Q3 2019 at around 180mil downloads per quarter, so this trend certainly seems to have staying power. Below are some of the effects available on Likee, a short form video platform. Snapchat believes it has a lead in AR due to its camera first nature, yet many short video platforms are also camera focused(As you can see from above, 34% of Tiktok's DAUs shoot daily) and have advanced AR capabilities. In the long run, Tiktok and other short form video apps are a threat to Snapchat because of their advanced AR capabilities. Considering each teenager only has a limited amount of time to spend on social media, spending time on Tiktok will likely reduce time spent on Snapchat. Tiktok also has incredibly high engagement metrics, with the average users spending over 46min on the app every day and opening the app 8 times.
For example, Tiktok's userbase skews really young, with most of its users being 13-24, meaning many of its users overlap with Snapchat users, at least in terms of age. However, after doing some digging, we have found that there is actually a lot of overlap between Tiktok and Snapchat, making Tiktok a serious competitor to Snapchat. While the short form video threat has been brought up many times, investors have mostly dismissed it, believing it is a fad or that it is "cringe" for most teenagers. On one hand, you have incumbents like Facebook and Tencent buying up smaller companies to grow, or just copying Snapchat's features, and on the other hand you have challengers like Tiktok growing rapidly on its own.
The competition for user time has never been more intense, both in the US and internationally. Substantial competition is arriving from short form video apps and the company still remains solidly in the red, so we continue to believe that this company is a sell. While the fundamentals of Snap( NYSE: SNAP) Inc have improved drastically since it hit all time lows early this year, the company still remains overvalued after its massive increase in valuation.