Snap 'Ain't Your Parents' Camera Company,' Citi Sees Revenue Of $13 Billion

"While user growth and audience scale may remain modest compared with Facebook Inc FB, the low rate of monetization currently and the high rate of engagement and penetration of Snapchat’s product within its core 13-24 age demo should enable significant revenue growth and margin leverage," Citi's Mark May said in a note.

The analyst initiated coverage of Snap Inc SNAP with a Buy rating and price target of $27.

Revenue Growth Opportunity

May believes the company will be able to generate revenues of over $13 billion, with close to $2.50 in adjusted EPS, by 2024, representing 44 percent 7-year revenue CAGR (compound annual growth rate).

The analyst believes there are five key positives for Snap.

First, with 70 percent of 13-24 year olds spending more than 30 minutes a day on average on Snapchat in the U.S., the app is expected to “increasingly become an indispensable way for marketers to advertise to this difficult to reach audience.”

Related Link: Brian White Sees Snap As More Than A Camera Company

Market Penetration

Second, although the penetration of Snapchat among 13-24 year olds is high in the U.S., penetration in the 25+ age groups is low, at below 15 percent in the U.S. In addition, penetration across all demographics outside the U.S. is expected to offer a material growth opportunity.

May also believes there is significant opportunity for Snap to grow its revenue, “even if user growth is modest.”

TAM

In fact, the analyst noted that Snapchat’s ad revenue TAM (total addressable market) was significant, “with even its most narrowly defined TAM being $32bn.”

May added, “if Snapchat is able to achieve the user and monetization growth we forecast, we see significant opportunity for leverage, and long-term adj. EBITDA margin potential of 40 percent-plus.”