On Wednesday, Truist Securities adjusted its outlook on Snap Inc (NYSE: NYSE:SNAP), raising the price target to $14.00 from the previous $13.00, while keeping a Hold rating on the stock. The adjustment follows the company's third-quarter results, which surpassed the conservative forecasts, and a mixed fourth-quarter guidance.
Snap's third-quarter performance was noted for showing positive momentum in Direct Response (DR) and the Snapchat+ subscription service. However, this was tempered by a decline in Brand advertising.
This mixed outcome occurred against a backdrop of improving margins, indicating that Snap's adjustments to its advertising products are gaining traction, particularly among small and medium-sized businesses (SMBs). Despite these gains, the execution of these strategies remains inconsistent quarter over quarter.
The company's user growth in the United States has been flat year over year, with the North American market, which is Snap's most lucrative for monetization, experiencing a decrease in Brand advertising spending. This is particularly noteworthy as the fourth quarter is typically a strong period for advertising. Due to these factors, Snap is seen as losing market share in the digital advertising space.
In light of these developments, Truist Securities has made slight revisions to their estimates for Snap, leading to the updated price target. The Hold rating suggests that while there are positive aspects to Snap's recent performance, there are still uncertainties that prevent a more bullish stance on the stock at this time.
In other recent news, Snap Inc. posted robust third-quarter results, with revenues and EBITDA exceeding Wall Street's expectations. The company's advertising revenue saw a year-over-year increase, and Snap added 11 million daily active users quarter-over-quarter, reaching a total of 443 million. However, Snapchat+ subscriptions were slightly below expectations at 12 million, showing decelerating growth. Snap also announced a new $500 million stock buyback program.
Canaccord Genuity, Goldman Sachs, and BofA Securities have all adjusted their price targets for Snap following these results. Despite the positive performance, Snap's cautious approach to the rollout of its new feature, Simple Snapchat, has been noted by analysts.
InvestingPro Insights
Snap Inc's recent financial data and market performance offer additional context to Truist Securities' analysis. According to InvestingPro, Snap's revenue for the last twelve months as of Q2 2023 stood at $4.98 billion, with a revenue growth of 11.08%. This aligns with the company's reported momentum in Direct Response advertising and Snapchat+ subscriptions.
However, InvestingPro Tips highlight that Snap is not profitable over the last twelve months, which is reflected in its negative P/E ratio of -16.66. This underscores the challenges mentioned in the article regarding inconsistent execution and loss of market share in digital advertising.
On a positive note, InvestingPro Tips indicate that Snap operates with a moderate level of debt and its liquid assets exceed short-term obligations, suggesting financial stability despite profitability concerns. Additionally, analysts predict the company will be profitable this year, which could support Truist's decision to maintain a Hold rating.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Snap Inc, providing a deeper understanding of the company's financial health and market position.
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