Snap's Story Is Just Getting Started

Snapchat parent Snap (SNAP 3.70%) soared on its second-quarter earnings report last month, and the innovations and new products the company has released show why it's made such a remarkable comeback.

After revenue more than doubled and the company posted its fastest user growth in four years, Snap's momentum is building. In this Motley Fool Live video recorded on July 29, Fool contributor Jeremy Bowman recaps Snap's strong second-quarter performance and breaks down why the stock has more room to run.

Jeremy Bowman: All right, I'm going to talk about Snap. First, Snap's the parent of Snapchat. I think just for those of you haven't followed the stock recently. This is a company that was really left for dead a few years ago. During the IPO in 2017, stories was their big product that got basically cannibalized. They're in pretty much every social media platform now; Facebook, Instagram, Twitter, all of them. The stock was trading in single-digits just a couple of years ago and now it's back up in the 70s. I think this is really one of the most more impressive turnaround and growth stories in the market today.

Let's take a look at some of their second-quarter numbers. They reported their earnings last Thursday, stock jumped 24% on the news. Obviously, good numbers. They grew their revenue in daily active users at their fastest pace in four years. Much like Brian said, that's going to be a theme here with lapping a weak quarter a year ago. But still, I think that's pretty impressive. Daily active users were up 23% at 293 million. They increased sequentially and year over year in all their geographies and both on iOS and Android had historically been a pain point for the company, but that's changed recently. Revenue more than doubled, jumping 116% to $982 million. That crushed expectations at $845 million. Again, I think that's a sign the business is underestimated. Adjusted EBITDA more than tripled to 117 million. This is a company that uses share-based compensation pretty liberally so if you back that out, the EBITDA, if they would lose money on an EBITDA basis. But they still managed to cut their GAAP numbers; GAAP net loss was down 53%. They are making progress toward profitability on a GAAP basis.

I think digging into some of the new products, or what's going on there. I think this is probably the most innovative company in social media. They spend about 30-40% of their revenue on R&D, which is much higher than peers like Facebook. They're really a leader in AR, too, I don't think they get credit for that, but they are using AR applications with their Lens Studio. Users can try on things like clothes, glasses and watches. This adds a lot of value for brands, not just engagement, but also in limiting returns, which is obviously a pretty sizable expense for retailers. Just to show you some numbers on the product users, 200 million Snapchatters engage with AR every day on the platform. There's 200,000 creators using Lens Studio to build AR lenses. 175 million Snapchatters now use Scan which allows them to identify things like dog breeds, plants, or use it for recipes and fashion. Spotlight as another new product that may be like TikTok in a sense gathers that most popular snaps of the day to allow users to watch them like a TikTok thing. DAUs for that or daily active users was up 49%, and the company still doesn't monetize that. When also you think about the company's base with Gen Z and some millennials, it's got a lot of growth ahead of it. Guidance for the third quarter was great, calling for 58-60% revenue growth of about 1.07 million. I think digital advertising has been a great story. Brian is going to talk about Facebook in a minute, but Google had an amazing report, so I think there's a lot of great momentum for Snap ahead.