On Friday, JPMorgan revised its price target for Snap Inc (NYSE: NYSE:SNAP) shares, the parent company of the popular social media platform Snapchat, reducing it from $13.00 to $11.00. The firm has maintained its Underweight rating on the stock.
The adjustment follows Snap's second-quarter earnings, which did not meet market expectations, partly due to a reduction in brand spending from certain consumer discretionary sectors, a trend that continued into the third quarter.
The analyst acknowledged Snap's initiatives to bolster direct response (DR) advertising, which is generally more robust. Snap's efforts to engage small and medium-sized businesses (SMBs) have resulted in a doubling of the active advertiser count year-over-year.
Additionally, the expansion of revenue streams through Snap+, which now boasts over 11 million subscribers and contributes six points to revenue growth, was noted as a positive development.
Despite these efforts, the midpoint of Snap's third-quarter outlook suggests only a two-point deceleration against a nine-point tougher comparison from the previous year.
JPMorgan's estimates, which are below those of the buyside, remain largely unchanged. However, concerns persist regarding the volatility of Snap's brand advertising revenue, which constitutes over 30% of its total ad revenue.
The new price target set for December 2025 is based on approximately 2.25 times the projected 2026 revenue of over $6.8 billion, which also corresponds to around 13 times the projected 2026 adjusted EBITDA of over $1.1 billion.
The firm indicates a need for greater confidence in Snap's ability to secure more consistent spending from advertisers before considering a rating change.
In other recent news, Snap Inc. has been the subject of several significant developments. The company reported a revenue for the second quarter of $1.24 billion, slightly below analysts' projections.
Amid a challenging economic environment and intense competition, the company anticipates a weaker-than-expected revenue for the current quarter.
Benchmark maintained a Hold rating on Snap stock, citing concerns about the company's ability to meet near-term consensus expectations in the face of a competitive digital advertising landscape.
BMO Capital Markets raised Snap's advertising revenue and EBITDA forecasts due to successful iOS platform updates and anticipated shifts in advertising expenditures.
In contrast, JPMorgan maintained its Underweight rating on Snap stock and revised its price target down to $11.00, citing concerns about the volatility of Snap's brand advertising revenue.
Snap also expressed support for the Kids Online Safety Act (KOSA), a proposed legislation aimed at establishing a clear "duty of care" for social media companies regarding the use of their platforms by minors. These are among the recent developments for Snap, as it navigates the evolving digital advertising landscape.
InvestingPro Insights
As Snap Inc. (NYSE: SNAP) navigates market challenges, real-time data and insights from InvestingPro can offer investors a sharper perspective on the company's current financial health. Snap's market capitalization stands at $21.11 billion, reflecting its position in the industry amid recent market fluctuations. Despite a challenging environment, the company's liquid assets surpass its short-term obligations, providing some financial flexibility. However, Snap's profitability remains a concern, with a negative P/E ratio of -16.06 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at -17.18, underlining the company's earnings difficulties.
InvestingPro Tips highlight that Snap's stock has struggled over the past month, with a price total return of -21.22%. This aligns with the broader sentiment expressed by JPMorgan's price target revision. On a more positive note, analysts predict that the company will turn profitable this year, which could signal a potential shift in its financial trajectory. Moreover, the company's Price / Book multiple is high at 9.9, suggesting that investors may be expecting future growth or that the stock is currently overvalued.
For those considering an investment in Snap, additional insights are available. There are 6 more InvestingPro Tips that could help inform investment decisions, accessible through the platform's comprehensive analysis tools. Visit https://www.investing.com/pro/SNAP for a deeper dive into the company's financials and market performance.
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