Citi Analyst: We Prefer Snap Over Twitter

Neither Snap Inc SNAP nor Twitter Inc TWTR are first-round drafts for Citi Research analyst Mark May, but if forced to pick one, he’d take Snap.

Some might question the preference considering Twitter’s outperformance, but May is decisive, justifying his position by less conventional metrics.

The Rationale

Snap is more quickly growing its active user base, which is already twice the size of Twitter’s and is anchored in a valuable youth audience. Its 36-percent expansion in the first quarter compares favorably to Twitter’s 6 percent.

At the same time, Snap sees greater engagement among average users, who stay on the platform more than 30 minutes per day against Twitter users’ 15 minutes.

Meanwhile, Snap has yet to capitalize on a seemingly significant earnings opportunity, as its average revenue per user is 85 percent below that of Twitter and Facebook Inc FB.

And, by what Citi considers the most relevant metric for young media platforms, Snap is killing it. The company is 25 percent less expensive than Twitter based on enterprise value versus time spent.

Considering these factors, May perceives a competitive advantage in Snap’s long-term opportunity to create value, potential to reach a wide population and capacity to generate revenue.

The Risks

However, many investors don’t see the stocks like May does.

“Investors are more focused on DAU growth versus the ARPU/monetization opportunity at Snap, and quarterly results could weigh on sentiment [or] the stock,” May wrote in a Thursday note. Similarly, “near-term revenue expectations may still be too high.”

Snap’s valuation is also at risk by the removal of lock-up restrictions.

May currently has a Neutral rating on the company with a $20 price target and a Sell on Twitter with a $12 price target. At the time of publication, Snap was down 1.3 percent at $13.38, while Twitter was down 1 percent at $15.97.

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