Deutsche Bank Analyst Sees Improvement At Snapchat

Investors continue to pay close attention to user metric trends at Snap Inc SNAP in light of Europe's General Data Protection Regulation (GDPR) taking effect and a loss of users as of the first quarter.

The Analyst

Deutsche Bank's Lloyd Walmsley maintains a Hold rating on Snap with an unchanged $12 price target.

The Thesis

Snap's recent first-quarter report showed a loss of 2.8 million daily active users (DAUs) from the prior quarter, but tracking data compiled by Deutsche Bank shows a turnaround, Walmsley said in a research note. Specifically, the redesign of the Snapchat app resulted in a "robust" user growth of 3 percent across all geographic regions in May. At the very least, the findings removes "one tail risk" in the near term as it implies the social media app may have become relevant.

An upgrade to a bullish stance on Snap's stock can't be made at this time, the analyst said. The reasons include:

• Even if growth continues throughout June, it doesn't guarantee any longer-term user growth opportunity and monetization;
• Competition within the social media landscape remains "fierce"; and
• Snap's stock valuation is "rich" at 10.4x 2019E sales and expectations for a 27 percent compounded annual growth rate through 2020.

Price Action

Shares of Snap were trading higher by 2.2 percent Wednesday afternoon at $13.20.

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