I have missed the mark on Snap (SNAP) in recent months, and it is time for me to admit that. On a macro level, central bank intervention and a risk-on rebalancing trade led to a significantly stronger base of support in equity markets and earnings estimates proved to be overly pessimistic. Specific to Snap and social media as a whole, investors cared much more about the extent of the pull-forward in user activities, even if monetization is not yet fully realized. Traditionally, ARPU and sales growth are top of mind (given that many of these firms do not post GAAP profits), but it would seem the focus has shifted to future monetization opportunities given the abnormality in present-day economic activity. That being said, this is not a thesis that I find comforting over the long term.

Snap now faces the task of ensuring these new-user adds prove sticky during the reopening, and these users are able to be adequately monetized. A major risk factor to consider is the long-term economic fallout of COVID-19 on SMBs because, although only representing a small number of the company's current partnerships, these firms represent a portion of the long-term growth prospects. Additionally, at 14.4x forward EV/REV, it seems that the market is pricing SNAP's performance to perfection, leaving little room for the sell-side estimates of improving profitability to waiver despite an uncertain time-horizon for the crisis and margins that are lagging peers. Investing in Snap at this point is a bet on the firm continuing price momentum, and, given the fickle nature of demand-priced markets, this is a narrative that leaves me uneasy.

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