- Benchmark analyst Mark Zgutowicz reiterated a Hold rating on Snap Inc SNAP.
- The analyst's industry checks suggest the overhaul of SNAP's DR (direct response) business over the past 6-12 months is gaining favor with advertisers in testing.
- He suspects SNAP's Partner Summit next week will showcase a much more robust DR stack which could be a modest near-term catalyst for the shares.
- The analyst's data checks indicate DTC ad spending on social broadly went negative Y/Y shortly after the SVB crash and has yet to recover to the plus side Y/Y.
- While he continues to monitor this dynamic, he remains sidelined with a Hold rating as advertiser sentiment remains the calm before the storm, and SNAP's distant GAAP profitability leaves limited tangible support.
- SNAP has long offered a one-size fits all DR stack that did not delineate outcomes to a specific DR advertiser cohort and model. Instead, SNAP's algorithms delivered a quasi-universal outcome (e.g., conversion value) that may have been optimal to one advertiser cohort while suboptimal to several others, leading their DR campaigns elsewhere (e.g. Facebook).
- Net-net, via advertiser tests over the past 6-12 months, the analyst hears SNAP's rebuilt DR stack is now optimized to a broader set of advertiser conversion models, producing more optimal outcomes.
- With a new scalable DR stack and key recent hires, including Ziggy Lin (previously head of product monetization at TikTok), SNAP is getting its competitive edge back.
- Snap will need to beef up underinvestment in its product marketing team, where SNAP trails versus peers.
- Meta Platforms Inc's META product marketing team on the monetization side will be slimmed down nearly 40% to sub-700 this year, which is still a monstrous advantage over SNAP's sub-50 heads, by the analyst's estimates.
- Net-net, the analyst remains interested to learn how management plans to thread the needle on NTM growth investment vs. cost discipline.
- Price Action: SNAP shares traded higher by 2.12% at $10.58 on the last check Tuesday.
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