Ross Sandler Highlights Snap's Q1 Positives And What To Monitor

Barclays' Ross Sandler maintained an Equal-Weight rating on Snap Inc SNAP's stock with an unchanged $18 price target after Snap reported earnings for the first time as a public company.

Overall, Snap's revenue exceeded Sandler's estimates but were still short of what his Wall Street peers were expecting as a whole. Perhaps more important, Snap's seven million daily active user net-adds was "not strong enough" to confirm the "Facebook is crushing Snapchat thesis."

The Positives

Sandler highlighted several positive aspects of the social media company's earning report, including: 1) improvement in engagement as users are spending on average 30-plus minutes a day, 2) revenue rose nearly four-fold on a year-over-year basis and is starting to scale, 3) hosting cost per daily active user fell quarter-over-quarter which is a "big positive development" considering it came at the same time as an increase in engagement.

What To Monitor

The analyst pointed out several issues that need to be monitored moving forward. Most notable is the lack of any meaningful pick up in daily active user net adds in the "rest of the world" category. Specifically, North America and Europe adds were consistent but ROW didn't recover.

Snap's 13 percent quarter-over-quarter decline in ad revenue is also something that may be understood by the Street, but still needs to be monitored.

The Bottom Line

Sandler does like Snap's long-term prospects given its ability to innovate in the social media landscape. As such, Snap's sharp pullback on Thursday could indicate the market is "starting to discount a lower bar for future execution."

Nevertheless, the analyst is sticking with his Equal-weight rating and is advising investors to "wait for the dust to settle before initiating or adding to positions."

See Also:

5 Takeaways From Snap's Q1

Early Signs That Snap Isn't Just For Teens