Can Snap Revenue Growth Beat Q1 Expectations Amid Redesign Criticism?

Wedbush's Michael Pachter on one hand likes Snap's revenue prospects for the first quarter against the Street; yet on the other hand, the analyst stays sidelined on dipping trends.


Wedbush analyst Michael Pachter may be hedging his bets on Snap Inc (NYSE:SNAP) amid a track record that that has not shown the money just yet for this tech player; yet, make no mistake as to Pachter’s optimism. Ahead of Tuesday’s first quarter print of the year, the analyst makes a positive prediction: look out for revenue growth to surpass the Street’s forecasts.

Even amid a redesign backlash that has drawn “widespread criticism,” the analyst sees odds are “unlikely” for usage to be meaningfully hit. For now, the analyst maintains a Neutral rating on SNAP stock with a $12.50 price target, which implies a solid 12% upside from current levels. (To watch Pachter’s track record, click here)

Though Pachter is encouraged on revenue growth, here’s why this analyst is playing it safe ahead of the social media darling’s quarterly showcase: “Decelerating growth trends, fierce competition for user mindshare and advertiser dollars, and a history of being hugely unprofitable keep us on the sidelines.”

For the first quarter, the analyst angles for $251 million in revenue from Snap and a loss per share of $(0.16) against the Street’s $244 million and $(0.17) estimates. Yet, one point to pay attention to here: decelerating growth trends. After all, Pachter highlights his forecasts suggest year-over-year revenue growth of 68%, a dip from the previous quarter’s 72% growth, along with total sequential daily active user (DAU) growth of 7 million, a step back from the previous quarter’s DAU growth of 9 million. Pachter estimates total average revenue per user (ARPU) will hit $1.30 for the quarter, a step down from the historic $1.53 from the previous quarter, but a rise from the $0.90 posted in the first quarter of last year. In the fourth quarter, Snap’s ad impressions notably rose 90% quarter-over-quarter, without including November’s launch of Promoted Stories, as pricing on similar ads meanwhile dipped 15%. Both of these numbers are predominantly impacted by what Pachter sees as an “ongoing mix shift towards programmatically placed ads.”

Overall, the analyst holds tight to his neutral stance on Snap ahead of the print, even with optimism in the mix: “Despite improvements in programmatic, we believe that Snapchat remains one of the most difficult-to-use social platforms for advertisers, and we anticipate modest user growth given its already high penetration among 13 – 34 year olds and high data loads. Notwithstanding the potential for sustained revenue growth above 30%, we continue to expect negative operating margins for the foreseeable future.”

TipRanks showcases that this social media millennial darling has Wall Street cautious, but optimistic. Out of 23 analysts polled in the last 3 months, 6 are bullish on SNAP stock, 10 remain sidelined, while 7 are bearish on the stock. Notably, the 12-month average price target stands at $15.79, marking a healthy upside potential of nearly 11%.

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