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RiverPark Funds: “SNAP has a Long Runway for Both Revenue Growth and Expanded Profitability”

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RiverPark Funds, an investment management firm, published its “RiverPark Large Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. The RiverPark Large Growth Fund (the “Fund”) returned 13.1% for the second quarter of 2021, while its benchmarks, the S&P 500 Total Return Index (“S&P”) advanced 8.5%, the Russell 1000 Growth Total Return Index (“RLG”) returned 11.9%, while the Russell 1000 Value Total Return Index returned 5.2%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of RiverPark Funds, the fund mentioned Snap Inc. (NYSE: SNAP), and discussed its stance on the firm. Snap Inc. is a Santa Monica, California-based social media company, that currently has a $120.1 billion market capitalization. SNAP delivered a 51.75% return since the beginning of the year, extending its 12-month returns to 252.09%. The stock closed at $75.98 per share on August 06, 2021.

Here is what RiverPark Funds has to say about Snap Inc. in its Q2 2021 investor letter:

"Snap shares were a top contributor for the quarter as well, also driven by strong first quarter results. The company reported accelerating revenue growth of 66% for the period (up from 62% fourth quarter growth), driven by user growth of 22%, and a 36% expansion in average revenue per user (ARPU). The company also guided to stronger-than-expected and accelerating 81%-85% revenue growth for second quarter 2021. Adjusted EBITDA improved by $79 million year over year for a break-even margin, up 1,800 basis points, and free cash flow improved dramatically, turning positive for the period to $126 million. Snap also continued to roll-out products that should help drive further expansion in user growth and ARPU, including Spotlight, a TikTok-like experience, with more than 125 million Snapchatters using it during March, and original programming starring Ryan Reynolds.

With TTM of $2.8 billion in revenue and an ARPU that is about 1/2 that of Twitter and 1/3 that of Facebook, we believe Snap has a long runway for both revenue growth and expanded profitability as it improves its platform functionality, grows its audience, and continues to advance its monetization."

Snapchat, Snap
Snapchat, Snap

Photo by Thought Catalog on Unsplash

Based on our calculations, Snap Inc. (NYSE: SNAP) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SNAP was in 73 hedge fund portfolios at the end of the first quarter of 2021, compared to 63 funds in the fourth quarter of 2020. Snap Inc. (NYSE: SNAP) delivered a 38.90% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.