3Q18 TAKEAWAYS
- DAU Commentary Concerning: SNAP guided to another quarter of declining DAUs for 4Q18 while refusing to offer any explanation as to why. SNAP has already rolled back much of its app redesign that frustrated its users, so there isn't any incremental downside catalyst into 4Q18. It's possible that redesign is leading to somewhat of a downward spiral in terms of the network effect in that the initial DAU decline led to less user-generated content, which then made the app less appealing to those that remained, and so and so forth. We're speculating, but SNAP's reported usage metrics suggest its users were never there for the Discover section. Further, mgmt suggested that the bulk of its DAU growth moving forward will come from from 1) penetrating the +35 year-old demos in the US & EU and 2) ROW expansion, which collectively would suggest that it has already captured the bulk of its tangible TAM (see our survey and SNAP deck below for context).
- Accelerating Growth Could be a Headfake: SNAP reported accelerating growth in both North America and Europe on accelerating ARPU. Mgmt also alluded to a "stretch goal" of reaccelerating revenue growth in 2019, but we doubt it could get there even if its DAU trends were to stabilize. SNAP's appears to cutting sales reps after another quarter of declining S&M spend, which we suspect would exacerbate what we estimate to be waning demand from its larger advertisers (see deck for context). While mgmt commentary on driving operational efficiency was encouraging at face value, some of its 3Q18 revenue growth was the result of ad budgets secured by its salesforce in prior quarters given the natural sales cycle. So cutting sales reps when advertisers are beginning to plan their 2019 digital ad budgets is not a recipe to reaccelerate growth.
SNAP DECK & REPLAY
- SNAP | Long-Term Bearish Thesis | 9/21/18 | CLICK HERE
Let us know if you have any questions or would like to discuss in more detail.
