Snap Shares Are Priced For Flawless Execution

Although Snap Inc SNAP is among the fastest-growing social media platforms, its daily active user growth has slowed due to stiff competition, Argus’s Jim Kelleher said in a report. While mentioning that the Street’s revenue estimates appeared aggressive, the analyst suggested buying the shares on non-fundamental weakness.

Kelleher initiated coverage of Snap with a near-term Hold rating and a long-term Buy rating, saying that the stock looks “priced for perfection.”

Tough Competitive Landscape

Snapchat is among the preferred social media platforms, especially among the pre-teen through mid-20s demographic. Kelleher pointed out, however, that the core Snapchat service faces stiff competition from Facebook Inc FB, Apple Inc. AAPL and others.

Estimates Look Aggressive

The Street expects Snapchat to generate revenue of $1.04 billion in 2017 and of $2.05 billion in 2018. This appears too high, as it reflects “extremely robust growth in advertising dollars, at a time when user growth is being impacted by competitor offerings,” the analyst noted. His revenue estimates are at $841 million for 2017 and $1.32 billion for 2018.

“The market has baked in enormous growth for Snap Inc…We believe investor will react harshly to any failure by the company to match these lofty expectations,” Kelleher commented.

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