'Firing On All Cylinders': Analysts React To Snapchat's Huge Quarter

Snap Inc SNAP shares surged more than 30% on Wednesday after the company reported blowout third-quarter earnings numbers that signaled a significant rebound in online advertising spending in the second half of 2020.

Snap reported adjusted EPS of 1 cent, exceeding analyst estimates of a 5-cent loss. Revenue for the quarter was up 52% to $679 million, handily beating analyst forecasts of $555 million.

Snap reported a third-quarter net loss of just $200 million, down 12% from a year ago. Daily active users were up 4% on a quarterly basis to 249 million.

Online Advertising Is Back: Bank of America analyst Justin Post said Snap benefitted from a powerful one-two punch of platform improvements and surging demand.

“Overall, a big revenue surprise, likely aided by both FB boycott ad spend re-evaluation, eCommerce strength, & traction for Snap’s multiple advertising initiatives,” Post wrote in a note.

Morgan Stanley analyst Brian Nowak said Snap’s big quarter may be a sign that the online advertising business has already completed a V-shaped recovery.

“We estimate that SNAP’s August/September ad growth rates already returned to pre-COVID levels,” Nowak said.

Rosenblatt Securities analyst Mark Zgutowicz said Snap’s premium branded ad formats are driving pricing upside.

“We attribute the pricing boost to brand advertisers coming back on board following a hiatus since Covid’s March disruption to brand campaigns,” Zgutowicz wrote.

See Also: BofA Upgrades Pinterest Following Blowout Snap Earnings

Longer-Term Bullish Trends: Raymond James analyst Aaron Kessler said engagement trends remain strong for Snap.

“Snaps per day increased by 25% y/y, time spent watching Shows increased 50%+ y/y, & 40% of the U.S. Gen Z population watched premium sports content on Snap,” Kessler wrote.

Needham analyst Laura Martin said Snap’s improvement in negative free cash flow from -$84 million a year ago to -$70 million in the third quarter was the biggest positive for investors.

“Owing to consistently negative FCF, SNAP has historically issued millions of shares to attract and retain employees,” Martin wrote.

KeyBanc analyst Justin Patterson said Snap is positioned to potentially achieve at least 30% annual revenue growth and meaningful margin expansion in the long-term.

“SNAP is firing on all cylinders, as evidenced by +52% y/y revenue growth fueled by solid engagement, record advertiser wins, and increased share of wallet,” Patterson wrote.

SNAP Ratings And Price Targets:

• Bank of America has a Buy rating and $40 target.
• Rosenblatt has a Buy rating and $50 target.
• Raymond James has a Market Perform rating and no target.
• Needham has a Hold rating and no target.
• Morgan Stanley has an Equal-Weight rating and $36 target.
• KeyBanc has an Overweight rating and $40 target.

Snap's stock traded around $37.77 at publication time.