As investors many of us tend to buy what we know.
We buy the stocks of companies we encounter in our daily lives – whose products we use ourselves.
Well, today’s stock pick – although it makes a heavily consumer-facing product – is one that you most likely do NOT use…
Despite the fact that it has almost 400 million daily active users.
It’s also just added generative AI to its capabilities…
And is trading at a bargain – with its stock almost 90% down from its 2021 high.
Of course, there’s a reason the stock is trading so low.
But the good news is, its daily active users have been steadily growing – providing a strong foundation for the company to recover.
This presents an opportunity for those willing to hold on to this AI stock until then.
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Snap Inc. (SNAP)
SNAP is the parent company of SnapChat – the social media app where nearly 60% of its users are under 24 years of age. Less than 20% of its users are over the age of 35.
Thanks to Apple’s restriction on advertising on its operating systems, SNAP has been struggling with monetization, with average revenue per user (ARPU) declining from a peak of $4.06 in 2021 to $2.69 currently.
But because of the steady growth in its daily active users – which is now at an all-time high – the hit to its earnings hasn’t been as drastic as it could have been. Further, that decline has already been reflected in its stock price – which again, is down 90% compared to when its ARPU was at a peak.
On top of that, the company has made some difficult – but necessary – decisions, such as right-sizing its headcount and refocusing on its core business models. It’s also added generative AI that serves as sort of a virtual assistant for users (it can even help them create content for the platform).
In sum, there’s no doubt SNAP has been struggling. But it’s trading at historically cheap valuations – and its continually growing ecosystem can provide a foundation for it to recover.
To your wealth,
Felix @ Ace of Investing