On Wednesday, Evercore ISI updated its stance on Snap Inc (NYSE: NYSE:SNAP), raising the price target to $15.00 from the previous $12.00, while maintaining an In-Line rating on the company's stock. The firm's decision follows Snap's third-quarter earnings, which presented a mix of modestly surpassing expectations and varied results.
The Evercore ISI analyst noted that Snap is currently undergoing considerable product innovation, including new features such as Simple Snapchat, Sponsored Snaps, and Promoted Places. However, they also cautioned that the long-term significance of these innovations has yet to be established. There is a possibility that the Simple feature could lead to complications and disrupt revenue streams in the near to medium term.
The report further indicated that while Snap's brand advertising is still not performing up to par, the company's profitability metrics, specifically EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and FCF (Free Cash Flow), are showing signs of improvement.
Despite these positive trends in profitability, the analyst expressed that the current valuation of Snap does not present a compelling investment opportunity, citing a 28X multiple on projected 2025 EBITDA.
The analyst reiterated the In-Line rating, suggesting that while the company is progressing in certain financial aspects, the overall valuation and uncertain long-term impact of the new product features warrant a cautious stance.
This assessment by Evercore ISI reflects a conservative optimism, recognizing the positive developments in Snap's financial health while acknowledging the potential risks associated with its current strategies and market position.
In other recent news, Snap Inc. has reported significant financial and user growth, surpassing Wall Street's third-quarter forecasts. The company's revenue rose by 15% year-over-year to $1.37 billion, outpacing the average analyst estimate of $1.36 billion. The user base also saw a notable increase, reaching 443 million active daily users, a 9% year-over-year increase.
In addition, Snap announced a share repurchase program valued at up to $500 million and introduced two new ad formats designed to attract large advertisers.
Recent developments also include analyst actions. Benchmark reiterated a Hold rating on Snap shares, citing concerns about average revenue per user growth. Meanwhile, JMP Securities upgraded Snap from Market Perform to Market Outperform, citing upcoming product launches and advertising enhancements.
TD Cowen maintained its Hold rating, projecting a slowdown in revenue growth but a slight increase in earnings before interest, taxes, depreciation, and amortization.
Snap has also been involved in efforts to enhance online safety for children, working with U.S. and British authorities in response to the formation of a trans-Atlantic government working group.
InvestingPro Insights
To complement Evercore ISI's analysis, recent data from InvestingPro offers additional context on Snap Inc's financial position. Despite the cautious outlook, Snap's revenue growth remains positive, with a 15.84% increase in quarterly revenue as of Q2 2024. This aligns with the analyst's observation of improving profitability metrics.
InvestingPro Tips highlight that Snap operates with a moderate level of debt and maintains liquid assets that exceed short-term obligations, which could provide some financial flexibility as the company navigates its product innovations. However, it's worth noting that Snap is not currently profitable over the last twelve months, supporting the analyst's view on valuation concerns.
The company's Price to Book ratio of 8.74 indicates that Snap is trading at a high multiple, consistent with Evercore's assessment of the stock's valuation. This metric, combined with the InvestingPro Tip that analysts predict profitability this year, suggests a market expectation of future growth that may not yet be reflected in current financials.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Snap's financial health and market position.
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