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Why Snap's Shares Skyrocketed Last Month

By Anders Bylund – May 6, 2020 at 8:35PM

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The company behind Snapchat is making the most of this unique moment in time.

What happened

Shares of Snap (SNAP 3.37%) rose 48.1% in April 2020, according to data from S&P Global Market Intelligence. This chart should help you find the date where the social media specialist separated from the broader market's already-impressive gains:

^SPX Chart

^SPX data by YCharts

So what

The Snapchat operator reported first quarter results after the closing bell on April 21, and the stock closed 36.7% higher the next day. Snapchat's daily active users increased by 20% year over year, driving revenues 44% higher and shrinking Snap's adjusted net loss by 20%. COVID-19 lockdowns inspired these high-growth numbers, and the company itself didn't mind letting everybody work from home.

"While friends and families are physically separated from each other and their regular routines, Snapchatters are coming together virtually to maintain their friendships through visual communication, self-expression, and storytelling," chief business officer Jeremi Gorman said on the first quarter earnings call. "The continued rise of mobile content consumption, especially on mobile-native premium formats, presents us with a growing opportunity."

Photo of a young woman wearing headphones and a facemask as she focuses on her smartphone.

Image source: Getty Images.

Now what

It wasn't all wine and roses since many advertisers hesitate to run bountiful advertising campaigns in a time of global economic strife, but Snap's high-octane usage growth is making up for that headwind. And if the challenge turns out to be greater than the opportunity at some point along the way, Snap can always lean on $2.1 billion in cash reserves and another $1 billion of untapped credit lines to make it through the slower periods.

Snap's stock has now gained 55% over the last 52 weeks. Shares aren't exactly cheap, trading at 12 times the company's book value and 14 times trailing sales, but those are the breaks for fast-growing companies with ambitious long-term goals and no need for pocketing short-term profits.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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