How International ARPU Improvement Could Impact Snap's Valuation
Snap Inc. is highly dependent on the U.S. market currently, with the North American segment accounting for over 80% of the company’s revenues and about 85% of its value, according to our estimates. Snap’s North American ARPU (average revenue per user) is about 9x its international ARPU, though its domestic user base is just about 70% as large as its international user base. Accordingly, the company could see a meaningful upside if its international ARPU improves substantially in the coming years.
Trefis has a $15 price estimate for Snap, which is ahead of the current market price.
Snap’s international ARPU witnessed strong growth in Q3’17, significantly outperforming growth in North America (albeit from a much smaller base). This was driven by Snap’s increasing focus on improving the UX of its Android app, which it has historically de-emphasized in favor of iOS, which is more popular in North America. Higher digital ad spending in international markets also aided the growth. In Q3’17, Snap’s quarterly ARPU in Europe increased 100% year-over-year, while it grew by about 7x in the Rest of World segment. In comparison, its North American ARPU grew by about 23% in the same period, impacted partly by the company’s shift to programmatic advertising, which lowers CPM rates.
The company’s move to re-design and simplify the Snapchat app, while rebuilding its Android app from the ground up, could enable it to bring in new users internationally while improving engagement on the app. Snap could also benefit from growing mobile advertising spends in markets such as Europe and Asia, and improving smartphone penetration in emerging markets like India. If Snap is able to improve International ARPU to levels of around $12 by 2024 (less than 25% of its North American ARPU in the same time horizon), while boosting DAUs to 200 million, there could be an upside of roughly 20% to our current price estimate of $15, which is roughly in line with the current market price.
See our interactive dashboard for Snap here.
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