A Snap Bull Points Out A Silver Lining In An Otherwise Messy Q3

By many measures, Snap Inc SNAP's third-quarter earnings fell well short of what analysts were expecting.

Wall Street was expecting the company to report revenue of $207.9 million, indicate it has 181.8 million people who use the platform daily (DAU) and an average revenue per user (ARPU) of $1.30. Instead, the company reported revenue of $207.9 million, 178 million daily active users and an ARPU of $1.17.

The Analyst

Credit Suisse's Stephen Ju.

The Rating

Ju maintains an Outperform rating on Snap's stock with a price target slashed from $20 to $17.

The Thesis

The social media company's earnings was very much "messy" but there is one "silver lining" that reinforces a bullish stance, Ju said in a report. Specifically, programmatic sales of Snap Ad impressions account for 80 percent of total impressions, which marks an improvement from zero percent in the third quarter of 2016 and 60 percent in the second quarter of 2017.

It's only a matter of time before programmatic sales accounts for nearly 100 percent and the revenue through auction surpasses 50 percent, the analyst said. At that point Snap's ad pricing headwind will become a tailwind as it adds advertisers to the platform.

"Hence we do not view our investment thesis as being impaired but rather moving at a slower pace than we had hoped," Ju wrote.

Price Action

Shares of Snap were trading lower by more than 13 percent Wednesday at $13.14, but are still above its all-time lows of $11.28.

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