Snap's Big Q2 Not Strong Enough For Some Analysts To Turn Bullish

Snap Inc SNAP reported a better-than-expected second-quarter earnings print, which prompted several analysts to lift their price targets on the stock but shied away from turning bullish.

The Analysts

• Nomura Instinet's Mark Kelley maintains a Neutral rating on Snap with a price target lifted from $10 to $15.
• Wedbush's Michael Pachter maintains at Neutral, price target lifted from $12.25 to $14.75.
• Stifel's John Egbert maintains at Buy, price target lifted from $17 to $19.

Snap shares hit a new 52-week high of $17.40 Wednesday morning and were higher by 15% at time of publication.

Big Beat, But Don't Chase

Snap reported a "big" beat, highlighted by net user adds of 13 million sequentially versus the Street's estimate of just two million net adds, Kelley wrote in a note. The Android app refresh "clearly" drove growth outside of the U.S. but "more surprising" was the up to nine million net adds coming from new Lenses which the analyst suspected would have been short-lived.

Even excluding the picture filters, Kelley said Snap's organic net adds would come in at four million at the low-end which is still double the Street's estimate. Management's daily active user base of 205 million to 207 million in the third quarter implies continued momentum with another net addition of two million to four million users.

Investors should be cautioned against chasing Snap's stock at current levels and a pullback in the stock could prompt the analyst to take a different tone on his rating.

Wedbush: Minimal Room For Upside

Snap's earnings marks the biggest quarter for user growth since becoming a public company, Pachter wrote. Encouragingly, growth was broad-based across geographic regions and devices which helped drive 7% more Snaps among new Android users and a 10% improvement in retention.

Management's third-quarter revenue and EBITDA outlook exceeded the Street's estimates while DAU growth of up to four million users is encouraging against a typically seasonal weak period.

Snap is showing continued improvements in many aspects of its business but it's "difficult" to recommend buying the stock that traded at more than 50 times EV/EBITDA on Tuesday.

Related Link: Stifel Upgrades Snap Ahead Of Earnings

Stifel: 'Increased Optimism'

Egbert said Snap's quarter showed notable improvements in usage, including an average of 3.5 billion Snaps created per day while the average time spent per user rose above 40 minutes per day,. The growing user metrics were made possible as the app is more accessible to non-English speakers and the company continues to differentiate itself through augmented reality filters/lenses.

Snap has grown its advertiser base in each quarter since the middle of 2017 and Tuesday's print marks a historic high in terms of active advertisers on the platform, the analyst wrote. Some of the largest advertisers are noting uncapped budgets in reaction to "significant" improvements in ad products and optimization tools.

Looking forward through 2020, Egbert said it's likely Snap will show revenue growth in excess of planned investments. As such, "increased optimism" in the company's user growth momentum and improving ad business suggests the company is taking "bigger strides toward near-term profitability."