This is the No. 1 thing Snapchat has to overcome

Snap (SNAP) proved in its latest quarterly earnings report that it’s got a lock on Generation Z.

“I remain somewhat bullish on Snap for one reason only,” says John Meyer, managing partner of Starship Capital. “Their teenage user adoption and retention is a goldmine for advertisers trying to reach Gen Z.”

Snapchat’s user base grew 8% year-over-year to 203 million daily active users.

That’s still a distant second to Instagram’s 500 million daily active users, but Snapchat has something Facebook’s Instagram (FB) doesn’t.

According to CEO Evan Spiegel, Snapchat now reaches 90% of 13- to 24-year-olds in the U.S., U.K., France, Canada and Australia.

And a recent Piper Jaffray survey of 8,000 teenagers found 41% said Snapchat is their favorite social platform.

Monetizing Gen-Z

It’s how Snapchat decides to monetize that demographic is what Meyer says is Snapchat’s No. 1 problem.

“[Gen Z] is a generation that uses Snapchat for everything – for messaging from one friend to another, to organizing plans to exchanging photos,” Meyer tells Yahoo Finance’s “The First Trade.”

“I think the growth for Snapchat is really going to have to come from increasing innovation when it comes to capturing revenue from that demographic. If they can’t figure that out, they’re going to face some serious issues on the revenue front.”

Snapchat co-founders Bobby Murphy, left, and CEO Evan Spiegel ring the opening bell at the New York Stock Exchange as the company celebrates its IPO on March 2, 2017. (AP Photo/Richard Drew, File)

Meyer says Snapchat needs to make it easier for companies to create advertisements for its platform.

“To create ads on Snapchat, you almost need to create an entirely new marketing department,” Meyer says, “because of the nature of the native advertising within Snapchat that works well with the younger demographic.”

Meyer says that kind of customization can be very onerous for a startup or small business that doesn’t necessarily have the resources to create ads specifically for just one platform.

Investors appear to be rallying around the company’s big snap back. Snap shares were 15% higher, to $17.14, Wednesday afternoon. After a rough 2018, Snap’s stock price has nearly tripled this year, though it still has a long way to go before revisiting its all-time high of $28.25 a share on the day it went public in March of 2017.

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.

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