How Does Top Analyst Mark Mahaney See Snap Inc (SNAP) and Facebook Inc (FB) Ahead of Q3 Results?

Here's why Mark Mahaney "likes" Facebook better than Snap as a tech play for the near-term.


Top analyst Mark Mahaney likes the odds on two crowd-pleasers of the tech world, but which one is the wiser of the investments when it comes to Snap Inc (NYSE:SNAP) and Facebook Inc (NASDAQ:FB)? As Wall Street approaches another round of earnings soon enough, one of the best-performing analysts is out with a quarterly preview that finds trends might make Snap a bigger gamble than Facebook- at least when glancing at near-term prospects.

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. Mark Mahaney has a very good TipRanks score with a 76% success rate and a high ranking of #17 out of 4,694 analysts. Mahaney realizes 26.0% in his yearly returns. However, when recommending SNAP, Mahaney forfeits 7.2% in average profits on the stock. When suggesting FB, Mahaney earns 29.0%.

Let’s take a closer look to see why the top analyst believes Facebook is a smarter investment than Snap:

Should Wall Street Be So Surefire Confident on Snap in the Near-Term?

Snap investors were thrilled yesterday when Credit Suisse joined the bulls on the popular Snapchat app parent company, sending shares on an almost 12% rise. However, though Mahaney commends Snap as a distinct leader of the innovation pack, from both a consumer as well as an advertiser standpoint, the social media player is also the one most out on a limb in the short-term.

Why? Consider skeptical visibility and that though this stock has been outclassing the S&P intra-quarter, Wall Street might be overly confident on Snap’s near-term. Mahaney notes that based on his Market Survey, negative trends are circling Snap, threatening future spend intentions and ROI perceptions alike.

As such, ahead of quarterly earnings, the analyst reiterates an Outperform rating on SNAP stock with a $20 price target, which represents a 25% increase from where the stock is currently trading.

For the third quarter print, likely due at the start of November, the analyst expects Snap to post $222 million in total revenue and ($201 million) in adjusted EBITDA, which is less confident than the Street’s revenue expectations looking for $241 million and adjusted EBITDA forecast of ($188 million). Additionally, the analyst sets expectations for 8 million in daily active user (DAU) adds, a million under the Street’s 9 million, for a quarterly projection of 181 million and ARPU of $1.23. Considering Mahaney’s expectations, he finds the Street’s to be “somewhat aggressive,” noting, “[there is a greater probability of SNAP estimates coming down rather than up post the EPS print.”

Mahaney asserts: “We believe the riskiest stock near-term may be SNAP, which materially outperformed the S&P intra-quarter while visibility remains uncertain and estimates appear somewhat aggressive. Our recent Marketer survey supports this near-term view – the survey showed clear strengthening trends for FB and relatively negative trends for SNAP regarding future spend intentions and ROI perceptions.

Overall, the analyst concludes that innovation still bodes well for this tech player into next year, contending: “SNAP is putting in place the pieces (product innovations like Maps, Android ecosystem improvements, and selfservice ad solutions) that can drive a fundamentals re-acceleration in ’18. We see SNAP’s current limited DAU base (173MM or ~1/8th the size of FB) and its current low ARPU ($1.05 or ~1/7th that of FB) as creating substantial growth opportunities IF SNAP executes extremely well…”

It is not that Mahaney is not bullish on Snap; simply that Facebook is a more promising pick for now.

Wall Street is undecided on the social media stock, as TipRanks analytics exhibit SNAP as a Hold. Out of 27 analysts polled by TipRanks in the last 3 months, 8 are bullish on Snap stock, 14 remain sidelined, and 5 are bearish on the stock. With a loss potential of 5%, the stock’s consensus target price stands at $15.18.

Facebook Is the Best of the Internet Ringleaders

Facebook is Mahaney’s favorite when it comes to picking from the “top large cap longs,” even though the social media titan underwhelmed against the S&P’s performance intra-quarter- which leaves room for Facebook to beat the Street’s expectations for the third quarter.

“We’re most incrementally near-term constructive on FB,” the analyst writes, maintaining an Outperform rating on shares of FB with a price target of $195, which implies a close to 13% increase from current levels.

For the third quarter, Mahaney is angling for the social media titan to bring $10.05 billion in revenue, which would mark a 43% year-over year surge, $6.21 billion in adjusted EBITDA, and $1.30 in GAAP EPS, which would mark a 44% year-over-year climb, just ahead of consensus expectations calling for $9.84 billion in revenue, $6.18 billion in adjusted EBITDA, and $1.27 in GAAP EPS.

This is a tech leader whose ad revenue has continued a consecutive trajectory of promising quarterly performance, the kind of impressive stats not every stock player can claim, as Mahaney highlights, “17 straight quarters of 50%+ Y/Y Ad Revenue Growth and mid to-high-teens MAU growth (off massive scale) is unprecedented and speaks volumes about FB’s value proposition to both advertisers & consumers. Our recent Marketer survey also Bullish. And FB still has several new large revenue growth drivers (Instagram, Video, Messaging).”

Trends look encouraging for Facebook based on the analyst’s research, as he notes, “Our Marketer Survey shows clearly strengthening trends for FB in terms of Current Budget Allocations and Future Spend Intentions).”

Meanwhile, “Facebook has continued to grow users at an impressively robust pace off a very large base,” opines the analyst. For the third quarter, Mahaney projects FB to see MAU growth of 14% to $2.04 billion as well as a bit of a quarterly rise in the DAU/MAU ratio to 66.1%.

Mahaney could not be more enthusiastic on Mark Zuckerberg’s brainchild, surmising: “FB might well be the Best Growth Story in Tech. Core FB is growing extremely well, with almost unprecedented Ad Revenue growth consistency. More important, we believe that FB’s current low market shares […] will help it to maintain premium growth for a long time. And FB still has several new large revenue growth drivers (Instagram monetization, Messaging Platform monetization, Camera/AR AND Video). ”

The top analyst is not the only one rooting for this social media titan’s success, as TipRanks analytics reveal FB as a Strong Buy. Based on 34 analysts polled by TipRanks in the last 3 months, 31 rate a Buy on Facebook stock, 2 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $198.79, marking a 15% upside from where the stock is currently trading.