On Wednesday, JMP Securities adjusted its outlook on Snap Inc (NYSE: NYSE:SNAP), reducing the price target to $16.00 from the previous $17.00, while keeping a Market Outperform rating on the stock. The adjustment follows Snap's third-quarter 2024 earnings, which aligned with expectations, with revenues slightly above consensus and EBITDA surpassing consensus by $32 million. The upper range of Snap's fourth-quarter revenue guidance matched consensus estimates.
Snap's third-quarter performance demonstrated a continuity in direct response (DR) growth of 16% year-over-year, mirroring the growth seen in the second quarter despite a more challenging comparison.
This consistent DR growth indicates Snap's effectiveness in driving return on ad spend (ROAS). The company is set to begin more rigorous testing of Sponsored Snaps in the fourth quarter, which analysts believe will start in November.
The company has been strategically cautious with the rollout of its new feature, Simple Snapchat, aiming to avoid any negative impact on monetization. While the feature has increased engagement among less active users, it has been less beneficial for iOS users, who generally generate higher revenue than Android users. This suggests that the monetization gains from Simple Snapchat may be limited.
Snapchat's cautious strategy in deploying Simple Snapchat aims to mitigate concerns about potential disruptions to its revenue streams. However, the slower-than-anticipated effectiveness of Simple Snapchat in boosting engagement has led to a slight decrease in the price target.
The firm maintains its positive stance on Snap Inc, citing the upcoming testing of Sponsored Snaps and the steady growth in direct response advertising as factors supporting the Market Outperform rating. Despite the reduced price target, the firm's outlook remains optimistic about the company's potential to navigate the challenges and capitalize on its advertising strategies.
In other recent news, Snap Inc. has been the focus of several analyst adjustments following its third-quarter results. BofA Securities and Evercore ISI raised their price targets for Snap to $14 and $15 respectively, while maintaining neutral and in-line ratings. Meanwhile, Benchmark reiterated a hold rating, citing concerns about average revenue per user growth. On a more positive note, JMP Securities upgraded Snap from Market Perform to Market Outperform, highlighting upcoming product launches and advertising enhancements.
Snap's Q3 performance surpassed Wall Street's expectations, with revenue and EBITDA reaching $1,373 million and $132 million respectively. 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. However, Snapchat+ subscriptions were slightly below expectations at 12 million, showing decelerating growth.
Looking ahead, Snap provided a fourth-quarter user guidance of 451 million DAUs, an increase of 8 million quarter-over-quarter. While Snap's revenue outlook for the fourth quarter has a midpoint below Street estimates, its EBITDA midpoint is projected to be higher. In addition to financial projections, Snap announced a share repurchase program valued at up to $500 million and introduced two new ad formats to attract large advertisers.
InvestingPro Insights
Snap Inc's financial landscape offers additional context to JMP Securities' analysis. According to InvestingPro data, Snap's market capitalization stands at $18.07 billion, with a revenue of $4.98 billion over the last twelve months as of Q2 2023, showing a growth of 11.08%. This aligns with the article's mention of consistent direct response growth.
InvestingPro Tips highlight that Snap operates with a moderate level of debt and has liquid assets exceeding short-term obligations, which could provide financial flexibility as the company navigates its cautious rollout of new features like Simple Snapchat. However, it's worth noting that Snap is not profitable over the last twelve months, with a negative operating income of $1.15 billion.
Interestingly, despite current profitability challenges, InvestingPro Tips indicate that analysts predict the company will be profitable this year. This forecast could be influenced by Snap's strategic moves, including the upcoming testing of Sponsored Snaps mentioned in the article.
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.
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