Snap's Killer Quarter -- What Wall Street's Saying
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Snap (SNAP) - Get Report continues snapping out of its extended funk.
After several quarters of user growth declines and widening net losses that sent its share price plummeting, Snap has now reported several consecutive quarters of growth, and analysts all over Wall Street are bumping their prices targets higher.
The stock was soaring 14.9% to $17.04 a share on Wednesday and shares are up more than 200% year to date.
For the second quarter, Snap reported a net loss of 6 cents per share, beating expectations of a 10 cent loss. Revenue was $388 million, better than the expected $359 million. Importantly, Snap saw daily active user growth of 7.9% year-over-year to 203 million users. Wall Street was expecting DAUs to move up to $192 million. Average revenue per user also came in at $1.91, ahead of the expected $1.84, while negative free cash flow narrowed to $103.4 million from $234 million last year. The Street was expecting negative $135 million.
More than 10 analysts moved their price targets higher, according to FactSet. Here's what three top analysts said:
RBC Capital Markets, Outperform, Price Target Increased to $20 From $17
"Revenue growth accelerated, DAU growth turned sharply positive, Gross Margin expanded nicely & EBITDA loss narrowed materially -- a 4-part Summer Cocktail," analyst Mark Mahaney wrote in a note reiterating his outperform rating on Snap.
"Key drivers have been/are: necessary Android platform improvements, ongoing product improvements (AR Filters, Discover tab UI, and Games - Bitmoji Tennis is our fave), the successful development of a self-serve advertising platform, improved management execution, and secular tailwinds," Mahaney added. "SNAP has $1.2B in cash & equivalents... we predict EBITDA break-even in fourth quarter 2019 and free cash flow break-even in 2021."
Goldman Sachs, Buy, Price Target Increased to $20 From $18
"While the degree of user growth and engagement, 30+ minutes per day on average, is encouraging, we believe the biggest opportunity for further outperformance at Snap remains in the company's monetization," analyst Heath Terry wrote in a note. "Our checks continue to suggest increasing momentum with advertisers driven by improvements to Snap's ad tech capabilities, the Shopify integration, and growth in content consumption. We expect this will continue to drive both growth and profitability above management's guidance and market expectations for the foreseeable future."
Terry raised his 2020 revenue estimate to $2.486 billion from $2.324 billion. Maintaining his 2020 enterprise value-to-sales multiple of 12 brings him to a $20 per share valuation.
JPMorgan, Neutral, Price Target Increased to $17 From $11
"Material improvement in profitability, EBITDA breakeven in sight," analyst Douglas Anmuth wrote in a note. "Snap noted that cost structure per DAU grew less than 1% year-over-year as it drives down the cost to deliver snaps and impressions, resulting in revenue flowing to the bottom line and EBITDA leverage."
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