Snap Inc Has a Challenging Road Ahead, But This Analyst Is Banking on a 2018 Turnaround

GBH Insights' Daniel Ives commends Snap's "overhaul" of its app design, hoping it helps reposition the company for a comeback.


Snap Inc (NYSE:SNAP) is joining its internet peers in earnings season by doling out its fourth quarter print of 2017 come next Tuesday evening. The hot-button question on investors’ minds: Can this social media darling, and king of the millennial court “manifest” a turnaround this year?

GBH Insights analyst Daniel Ives weighs in, noting: “Next week SNAP will be reporting its 4Q results with the Street anticipating more pain could be ahead on DAU, ARPU, and underlying business trends as the company is going through a major transition on its app redesign and business overhaul.”

In anticipation of the quarterly show, the analyst reiterates an Attractive rating on SNAP stock with a $17 price target, which implies a close to 27% upside from current levels. (To watch Ives’ track record, click here)

For the fourth quarter, the Street is calling for $253 million in total revenues and ($0.16) in pro forma EPS, which implies 50% year-over-year growth for Snap. To Ives, this “speaks to a company with strong growth prospects, albeit clear business challenges ahead to iron out in 2018 with lingering black clouds over the story.”

However, Ives nonetheless notes that the tech player still brought around 6 million users for the quarter, which brings Snap to a total of 184 million daily active users (DAUs). This would suggest 16% year-over-year growth and Ives likewise pintpoints “a trajectory to exceed 200 million users during the course of 2018.” Moreover, “ARPU will be a major focus of 4Q which we believe will grow 30%-35% YoY, although still a major Achilles heel which is well below industry norms and a front and center strategic focus going forward for Spiegel & Co as part of the app redesign,” highlights the analyst.

Though Ives acknowledges slight short-term risk to Snap achieving these numbers, based on advertising checks, it looks as if trends slowly, but surely the backdrop is shifting “in the right direction.” The analyst believes engagement to pricing to ad load and inventory all should see improvement throughout the rest of this year, especially as the ‘long overdue’ app redesign repositions the “Snap train (hopefully) back on the tracks.”

The big app design “overhaul” will likely be a main point of attention next week, one that should simplify the user experience, making it “more intuitive” for them to be captivated to use the Snapchat platform. Ives explains the “the complexity has been a clear inhibitor especially for older demographics (key advertising target market),” especially when up against fierce rivalry from Facebook, Facebook-acquired Instagram, and even Twitter. Though Ives concludes seeing “challenges” ahead left to be resolved (including DAU and growth), he bets on the tech player’s ability to “turn this story around” as 2018 plays out.

TipRanks suggests a neutral analyst consensus tackling this social media darling’s prospects. Based on 24 analysts polled in the last 3 months, 5 rate a Buy on Snap stock, 11 maintain a Hold, while 8 issue a Sell on the stock. The 12-month average price target stands at $13.81, marking a nearly 3% upside from where the stock is currently trading.