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Snap breaks out: How the ‘camera company’ found its groove during the pandemic

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Key Points
  • Snap shares have soared during the past six months as investors have come to believe in the company's plan to continue to grow its ads business.
  • Still, some analysts worry that Snap's growth during the pandemic may be fully baked in the stock price.
  • Key leadership changes and increased focus on a young audience have turned Snap into a rare late-blooming success story — at least for the moment.
Evan Spiegel, co-founder and chief executive officer of Snap Inc., speaks during the New Work Summit in Half Moon Bay, California, U.S., on Monday, Feb. 25, 2019.
David Paul Morris | Bloomberg | Getty Images

A little more than four years ago, Snap Inc. became a public company. On its first day of trading — March 2, 2017 — Snap jumped 44%, closing the day at $24.48 per share. The next day, shares jumped again, reaching $29.44 per share during intraday trading.

It would be nearly three and a half years before the company saw its stock price hit that level again.

But Snap has surged since last fall. Shares are up about 125% since Oct. 20, the day before its third-quarter earnings.

Today, Snap has a market capitalization of about $96 billion. In late December 2018, it was worth $6 billion.

What's happened is the story of a company being ready for a transition that has been seen as a fait accompli but has only just started to occur. Snap's ascension can be linked to a broad-based, global transition to digital advertising.

"What we saw was companies that may have come to Snap in two, three, or five years accelerated plans during the pandemic," said John Egbert, an equity analyst at Stifel.

"The story of Snap is a lot like the story of Facebook," he said. "It took Facebook a while to monetize mobile, and it has taken time for Snap to build an advertising platform that's appealing to smaller businesses."

For investors, the important question is whether the company will maintain these new valuation levels as Covid-19 subsides. With so many new businesses trying to advertise on Snap for the first time during the pandemic, it's possible growth will slow as the surge dies down.

"We think multiple expansion in 2020 was aided by unusually low interest rates and outsized growth in a down economy," said Bank of America analyst Justin Post. "As conditions normalize, further multiple expansion is unlikely."

Or, Snap may be prepared for years of robust growth.

"Snap is in a position to grow revenue 50% to 60% for years, especially when you look at growth in users and monetization opportunities," said LightShed analyst Rich Greenfield said. "They are just starting to enter small businesses. We are big long-term believers."

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