Snap's First Print Ushers In A Cantor Upgrade, Decreased Target; DAU Figures Remain Paramount

Headline Numbers Shy Of Estimates

Analysts Kip Paulson, Naved Khan and Martha Lepczyk said the results featured steeper-than-expected deceleration in both DAUs and ad revenues.

On the main metrics, the analysts noted revenues of $149.6 million, representing 285.7 percent year-over-year growth, and adjusted EBITDA loss of $188.2 million missed the consensus estimates, which called for revenues of $158.3 million and an adjusted EBITDA loss of $180.7 million. The GAAP loss estimate of $2.31 per share was also wider than the $1.92 loss per share forecast by analysts.

Other Key Metrics

• DAUs: Up 36.1 percent to 166 million, a slowdown from the 47.7 percent growth in the fourth quarter.
• North American DAUs: 71 million, up 31.5 percent year-over-year versus 41.7 percent growth in Q4.
• Europe DAUs: 55 million, up 41 percent versus 52.9 percent in Q4.

Cantor Fitzgerald noted that despite the deceleration in DAUs, user base engagement was good, with users spending an average of 30+ minutes, creating 3 billion+ Snaps every day. This compares to 25–30 minutes and 2.5 billion+ Snaps in the fourth quarter.

The firm also noted that ad revenue growth decelerated to 286.6 percent from 406.4 percent in the fourth quarter. According to the firm, the primary driver was monetization, with ad revenue per DAU increasing 157.1 percent to $0.90 compared to 227.3 percent growth in the fourth quarter.

The firm noted capital expenditure was $18 million, reflecting an expansion of Snap's global office footprint and free cash flow declined to $173 million.

No Guidance

The firm said the management refrained from issuing guidance, reasoning that it plans to primarily focus on running the company over the long term. However, the company did note $1.3 billion of unrecognized compensation costs to be recognized over three+ years, the firm added.

Valuation Improved Post Sell-Off

"Although intense competition for users and digital brand dollars from entities such as Facebook Inc FB, YouTube, and Twitter Inc TWTR (particularly Facebook's Instagram) may continue, Snap still has a rich/engaging canvas for brand advertisers that are targeting the hard-to-reach, but highly desirable, 18–34 year-old demo, and valuation has improved post sell-off."

As such, the firm upgraded the shares of the company to Neutral from Underperform, but trimmed its price target to $17 from $18, citing the 23 percent sell-off after hours in the wake of the lighter-than-expected results.

In pre-market trading, shares of Snap were down 21.93 percent to $17.95, throwing up the risk of the stock falling below the IPO price of $17 for the first time since its listing.

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