On Friday, BofA Securities updated its outlook on Snap Inc (NYSE: NYSE:SNAP), increasing the price target to $16.00 from the previous $14.00, while maintaining a Neutral rating. The adjustment follows Snap's first-quarter results, which along with the company's direct response (DR) product performance, suggest potential for accelerated growth in the second half of 2024.
The analyst also noted that Snap could benefit from disruptions to TikTok, potentially leading to increased usage and revenue.
The revised price target is based on a higher 2025 revenue forecast of $6.3 billion and an elevated price-to-sales (P/S) multiple of 4.6x, up from 4.3x. This change reflects improved expectations for the company's growth and margins.
Despite this optimistic view on Snap's future performance, the firm reiterated its Neutral stance due to several factors, including flat year-over-year user trends in key markets such as the US and Europe, difficulties in monetizing user engagement on the platform, high stock-based compensation (SBC), and anticipation of GAAP losses continuing through 2026.
Snap's valuation, using the after-hours price of $14.20, stands at 31 times the firm's revised 2025 EBITDA estimate and 33 times the forecasted 2025 free cash flow (FCF). This valuation is considered a premium compared to peers, even with similar growth expectations.
The analyst's commentary reflects a cautious optimism, recognizing the potential for Snap's growth while also acknowledging the challenges the company faces in realizing this potential.
The updated price target and the reasons behind it were provided by a BofA Securities analyst, who cited Snap's first-quarter results and direct response product traction as key drivers for the revised outlook. The commentary highlighted both the opportunities and the headwinds for Snap, setting the stage for the company's performance in the coming years.
InvestingPro Insights
As Snap Inc (NYSE: SNAP) navigates a dynamic social media landscape, real-time data from InvestingPro provides further context to its market position and future outlook. With a market capitalization of $23.24 billion, Snap's valuation metrics present a mixed picture. The company trades at a high Price / Book multiple of 8.83, reflecting a premium compared to some of its peers. This could be indicative of the market's expectations for future growth, aligning with analysts' predictions that the company will turn profitable this year, a notable InvestingPro Tip. However, the P/E Ratio stands at -14.72, underscoring the company's lack of profitability over the last twelve months.
Revenue growth also offers a glimpse into Snap's trajectory. The company has seen a revenue growth of 6.28% over the last twelve months as of Q1 2024, with a significant quarterly increase of 20.85% in Q1 2024. These figures suggest a positive trend that may support the analyst's view of accelerated growth in the latter half of 2024. Additionally, the liquidity position is strong, with liquid assets surpassing short-term obligations, another InvestingPro Tip that could reassure investors of the company's financial health in the near term.
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