Yahoo Finance Does SNAP's Growing Command in AR & AI Make the Stock a Buy?
Snap Inc. SNAP is leveraging its strong suite of innovative features, particularly its Augmented Reality (AR) Lenses, Discover content, Shows and Snap Map, to drive user growth and engagement.
These offerings have helped SNAP reach 422 million daily active users, including the crucial 13-34 age demographic. It captures over 75% of this group in more than 20 countries — a significant portion of the global advertising market.
The launch of Snapchat+, which garnered over nine million paying subscribers in the first quarter, along with ARES and AR advertising, demonstrates Snap's efforts to diversify its revenue streams beyond traditional advertising. These initiatives, coupled with an expanding partner network, including major players like ITV and Spotify, are expected to contribute to a projected 14.7% increase in net sales for 2024.
Snap Inc. Price and Consensus
Snap Inc. price-consensus-chart | Snap Inc. Quote
Snap’s AR Ambition Takes Flight
Snap's AR development platform, Lens Studio, has been a key driver of its AR ecosystem. By allowing third-party developers to create AR experiences for Snapchat, the company has effectively crowdsourced innovation, leading to a diverse array of AR content that keeps users engaged.
SNAP’s ongoing investments in AR, including the development of AR glasses and filters, position it well to capitalize on the growing AR market, which is projected to reach $1,869.40 billion by 2032, per Fortune Business Insights report.
Adoption of the company’s AR lenses have been strong, particularly post the launch of Lens Studio 2. Over 300,000 AR creators and developers have built more than 3 million AR Lenses.
The latest update to the Lens Studio developer program dramatically reduces the time required to create complex AR effects, cutting down production time from weeks to mere hours. This will likely encourage more artists and developers to create content for Snapchat. The improved Lens Studio allows SNAP to create more sophisticated AR lenses, moving beyond simple effects like placing a hat on a person’s head.
Snap is also incorporating AR Extensions, which enable advertisers to integrate AR Lenses and Filters directly into all Snap ad formats.
Snap Bets Big on AI to Revitalize Growth and User Engagement
Snap's foray into AI, particularly generative AI, represents a strategic pivot to maintain relevance in the highly competitive social media landscape. Introduction of "My AI," a ChatGPT-powered chatbot, directly integrated into Snapchat, demonstrates its commitment to incorporating cutting-edge AI technology into its core product. This move, coupled with its efforts to enhance AR features and content creation tools using AI, indicates Snap's recognition of AI's potential to drive user engagement and retention.
SNAP has been exploring ways to use generative AI to create more dynamic and personalized AR lenses and filters. It is introducing a new GenAI Suite to the AR authoring tool Lens Studio, enabling AR creators to generate custom ML models and assets to power their Lenses.
Snap is also previewing real-time image models that can instantly bring user imagination to life in AR. This early prototype makes it possible to type in an idea for a transformation and generate vivid AR experiences in real-time.
With more than five billion Snaps created daily, Snapchat introduced new features to boost connectivity and self-expression. These include editable chats, expanded emoji reactions, My AI Reminders for managing schedules and Map Reactions for location-based interactions.
The company's focus on AI also extends to its advertising business. Snap is developing AI-powered tools to create more engaging ad experiences, a crucial step to bolster its revenues in a challenging digital advertising market.
The company’s advertising products include Snap Ads and Sponsored Creative Tools like Sponsored Lenses and Sponsored Geofilters. Moreover, Snapchat’s new conversion tracking tool, Snap Pixel is also gaining traction.
Snap is tapping the unique capabilities of Microsoft’s MSFT Chat Ads API to serve highly relevant Sponsored Links in their popular and engaging My AI chatbot.
Competition, Weak Advertising Market Create Near-Term Concerns
The optimistic outlook is tempered by concerns over weak advertising spending and fierce competition in the near term, which could potentially impact top-line growth. SNAP's ability to monetize its AI features, particularly in advertising, will be crucial for translating technological innovation into financial success.
Meta Platforms’ META AI efforts span from content recommendation algorithms to advanced language models. Alphabet GOOGL-owned YouTube has been leveraging AI for content recommendation, copyright detection and even for the creation of YouTube Shorts. LinkedIn, owned by Microsoft, has been incorporating AI into its professional networking platform. From job recommendations to content curation, LinkedIn is using AI to create more personalized experiences for its users.
Snap's ability to capitalize on potential improvements in the ad market and its AR initiatives at the current price level indicate an opportunity for risk-tolerant investors.
Snap stock carries a Zacks Rank #2 (Buy) currently and has a Growth Score of A, a combination that offers a good investment opportunity, per the Zacks proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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