Citi Maintains Buy On Snap, Says Important Metrics Are On Track

Snap Inc SNAP shares are down more than 21 percent following its first earnings report as a public company, but Citi analyst Mark May said the post-earnings sell-off is a buying opportunity for traders. According to May, traders are focusing too much on slowing daily active user growth and missing positive trends in major advertising metrics.

Staying At Buy

“We remain encouraged by other engagement KPIs, with avg. time spent on Snapchat now over 30 minutes per day (vs. 25–30 minutes previously reported), snaps taken per day growing to 3 billion (vs. >2.5 billion previously reported), and avg. sessions per day rising in the quarter,” May explained. Average revenue per user also increased 181 percent year-over-year to $0.90.

Related Link: Snap's Decline Post-Initial Earnings Print Offers A Compelling Entry; Oppenheimer Upgrades

In addition, the company announced that 20 percent of its ads are now programmatic.

Investor Concerns Remain

May admits that Snap’s first-quarter results did little to ease investor concerns over slowing user growth and monetization of its user base, but the company’s engagement trends and revenue growth are encouraging signs that Snap could easily be in the early stages of a long-term revenue growth and margin expansion story.

The rapidly-growing user bases of Facebook Inc FB’s Instagram Stories and WhatsApp Status, which now have combined DAUs approaching 400 million, leave Snap little margin for error with advertisers. Still, May believes Snap has an opportunity for strong revenue growth even if user growth cools. Citi projects 10-year compound annual revenue growth of 31 percent for Snap.

Citi maintains a Buy rating for Snap but has lowered its price target from $27 to $24.

At last check, shares of Snap were down 18.41 percent at $18.75.