Snap CEO Evan Spiegel said something during his company's second-quarter earnings call that explains exactly how shares of Snap can continue to jump: It just needs to increase the money it makes from each user, otherwise known as average revenue per user or ARPU for short.
"In terms of the ARPU question, I think if we take the U.S., for example, I think we're monetizing it like roughly 1/5 of Twitter ARPU or something like that in the U.S.," Spiegel said Tuesday during the call. "And not that we want to use that as a comp, but I think there's a huge amount of upside relative to the time spent in engagement we're seeing on our platform."
Snap reported a year-over-year ARPU growth rate of 42%, which sounds good, but the company's ARPU is still only $1.91. That's far below other social networks.
Twitter, which doesn't break it out, had an estimated ARPU of about $9.48 as of February. Facebook reported ARPU of $6.42 in April.
Snap's user base grew by 13 million daily active users to 203 million people, thanks in part to compelling new augmented reality filters the company has released in recent months. Those augmented reality filters are also what's helping to drive engagement and interest from advertisers.
"The enhancements we have made to our advertising business and self-serve platform meant that we were better able to monetize this increased engagement, leading to accelerating revenue growth," Spiegel said.
Put simply, if Snap can find a way to make more off of each user — and it seems like increased engagement and excited advertisers are already helping — it can increase its ARPU and improve its valuation, just like Spiegel said.
— CNBC's Megan Graham contributed to this report.
Disclosure: CNBC parent NBCUniversal is an investor in Snap.
