On Wednesday, Goldman Sachs (NYSE:GS) adjusted its outlook on Snap Inc (NYSE:SNAP), increasing the price target to $13.50, up from the previous $12.00, while keeping a Neutral stance on the stock. The firm's analysis followed Snap's third-quarter earnings report for 2024, highlighting several key points that influenced this decision.
Snap's third-quarter revenue slightly exceeded Goldman Sachs and FactSet Street's expectations, along with the company's own guidance. This was attributed to the advancement of Snap's direct-response initiatives and other revenue streams, which helped mitigate the ongoing challenges in brand advertising. Furthermore, Snap displayed significant outperformance in gross margins and adjusted EBITDA.
Despite these positive developments, the company's management indicated a commitment to continue investing in long-term growth initiatives. Additionally, Snap announced a new share repurchase authorization. Goldman Sachs found management's optimistic remarks on the growth of Snap's direct response business and the expansion of the Snapchat+ subscription revenue stream promising for potential long-term revenue growth.
However, Goldman Sachs expressed the need for clearer insights into the brand advertising climate for the fourth quarter of 2024 and into 2025, as well as the scale and scope of the company's investments and the expected trajectory of its medium-to-long-term margins before adopting a more constructive position on the stock. The firm's maintained Neutral rating reflects a cautious approach, awaiting better visibility on these factors.
In other recent news, Snap Inc. reported impressive third-quarter results, with revenue and EBITDA reaching $1,373 million and $132 million respectively, surpassing Wall Street's expectations. The company's advertising revenue saw a year-over-year increase of 9%, and Snap added 11 million daily active users quarter-over-quarter, reaching a total of 443 million. Despite these positive results, Snapchat+ subscriptions were slightly below expectations at 12 million, showing decelerating growth.
In response to these developments, JMP Securities adjusted its outlook on Snap, reducing the price target to $16.00, while keeping a Market Outperform rating. BofA Securities and Evercore ISI raised their price targets for Snap to $14 and $15 respectively, while maintaining neutral and in-line ratings. Benchmark reiterated a hold rating, citing concerns about average revenue per user growth.
Snap's recent activities also include the introduction of two new ad formats and a share repurchase program valued at up to $500 million. The company has been strategically cautious with the rollout of its new feature, Simple Snapchat, aiming to avoid any negative impact on monetization.
InvestingPro Insights
To complement Goldman Sachs' analysis of Snap Inc (NYSE:SNAP), recent data from InvestingPro offers additional context. As of the last twelve months ending Q2 2023, Snap's revenue stood at $4.98 billion, with a growth rate of 11.08%. This aligns with Goldman's observation of the company slightly exceeding revenue expectations.
InvestingPro Tips highlight that Snap operates with a moderate level of debt and has liquid assets exceeding short-term obligations. These factors could support the company's ability to invest in long-term growth initiatives, as mentioned in Goldman's report. However, it's worth noting that Snap is not currently profitable, with a negative operating income of $1.15 billion over the same period.
Despite the challenges, analysts predict that Snap will be profitable this year, which could be influenced by the company's focus on direct-response initiatives and the growth of Snapchat+. The stock's Price to Book ratio of 8.74 suggests investors are pricing in expectations of future growth, aligning with Goldman's cautiously optimistic stance.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Snap, providing a deeper understanding of the company's financial position and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.