Snap Sells Off As Losses Grow, But These Analysts Would Buy The Dip

Snap Inc SNAP shares traded lower by 8% on Wednesday after the company reported a $326 million net loss in the second quarter, up from a $255 million loss a year ago.

Snap reported a 9-cent EPS loss on the quarter, in-line with consensus analyst estimates. Revenue of $454 million exceeded Wall Street expectations of $439.1 million. Snap also reported 4% quarterly growth in daily active users, which grew to 238 million versus consensus estimates of 238.4 million.

Several analysts have weighed in on Snap stock since the report.

Some Q3 Clarity: Credit Suisse analyst Stephen Ju said management’s unofficial guidance of about 20% revenue growth and low-to-mid 20% total expense growth in the third quarter provided at least some clarity for investors.

“While visibility remains limited, the 2Q20 results and the September-end QTD commentary do confirm that the underlying pieces of what has been driving shareholder value creation at Snap--in particularly its efforts to progress lower in the marketing funnel and drive direct response budget wallet share gains--remain intact,” Ju wrote in a note.

Raymond James analyst Aaron Kessler said Snap’s environment remains challenging, but the quarter-to-date ad growth trends are solid.

“We remain positive on Snap’s improving ad performance and execution, although we believe shares are fairly valued at ~17x/13x our 2020/2021 revenue estimates (vs. ~7x for FB/TWTR),” Kessler wrote.

Rosenblatt Securities analyst Mark Zgutowicz said Snap’s direct response ad business continues to produce healthy growth numbers in a difficult environment.

“While some concerns were raised with near-term DAU growth, we ultimately see scale driven by more advertisers and more creative ad units, which Snap continues to bring to the table,” Zgutowicz wrote.

Long-Term Opportunity: Barclays analyst Ross Sandler said Snap’s results were solid, but expectations were also high.

“Looking forward, with only around 11 ads/DAU currently (vs. FB at 40+) and huge improvements of late in the ads stack, we remain bullish on the long-term opportunity in front of SNAP,” Sandler wrote.

Bank of America analyst Justin Post said Snaps ad business recovery has been slower than investors hoped, but the platform still provides a great long-term opportunity.

“We see Snap executing well against their monetization expansion objectives, see a clear path for sustained ARPU upside, and see potential for material acceleration in growth and flip to profitability in 2021,” Post wrote.

UBS analyst Eric Sheridan said Snap continues to emphasize strong user engagement trends and the rollout of improved ad products.

“Against a backdrop of solid advertiser checks and general investor optimism, SNAP's Q2‘20 earnings report told a story of LT themes intact, a rate of recovery that remains volatile but still overall promising & a framing of fwd Q3 operations that seem to face a mix of headwinds wrapped in some likely conservatism,” Sheridan wrote.

SNAP Ratings And Price Targets

• Credit Suisse has an Outperform rating and $30 target.
• Raymond James has a Market Perform rating.
• Rosenblatt Securities has a Buy rating and $30 target.
• Barclays has an Overweight rating and $29 target.
• Bank of America has a Buy rating and $28.50 target.
• UBS has a Buy rating and $25 target.

Related Links:

What To Make Of Netflix's Q2 Earnings, Subscriber Growth And Valuation

BofA, Morgan Stanley, Schwab Post Solid Numbers In Challenging Environment: Bank Earnings Roundup