Snapchat: The Profit Era May Soon Begin

Snapchat (SNAP) looks quite unloved in a generally unloved social media sector. The company is indeed showing troubling signs regarding growth, but the market appears to have priced in too much bearishness. Management has already moved towards aggressively ramping up profit margins.

SNAP’s revenue grew 12% YoY, driven by ARPU increases, but North America DAUs declined and ad revenue growth was stagnant. Management’s aggressive cost-cutting, targeting $500 million in annualized savings, positions SNAP for margin expansion and potential GAAP breakeven. Valuation at 1.2x sales and 8x non-GAAP earnings offers compelling upside if margin expansion materializes, even with modest growth.