Last Minute Thought: Buy or Sell Snap Inc. (SNAP) Stock Before Q4:18 Earnings?

Earnings reports haven’t been kind to shares of Snap (SNAP) lately.

Its shares have dropped an average of 13 percent on the day immediately following the social media giant’s past three releases. Whether another down day awaits after the fourth-quarter report today depends on what progress investors see in CEO Evan Spiegel turnaround plan. Spiegel has pushed a redesign of the site and added offerings that could improve Snapchat’s ability to generate revenue. However, its past initiatives have either failed to gain traction or fallen to competition from Facebook. Indications have also surfaced that it might struggle with its core user base — teens.

SunTrust’s top analyst Youssef Squali commented, “We believe Snap’s 4Q financial results and outlook should beat muted Street expectations given the positive commentary provided in early January indicating rev/adj. EBITDA would both be “slightly favorable” to the high-end of prior guidance. That said, we maintain a Hold rating due to continuing revenue deceleration, plateau-ing DAUs, and high leadership turnover. Further, we find valuation fair at 5.3x EV/Revs on our 2019 estimate, which is towards the highend of the range of our IDM group.”

“We believe Snap will show further deceleration in revenue growth in 4Q18 on tougher Y/Y comps, but still show well-above industry growth driven by a broadly healthy online ad market (as evidenced by FB’s results last week), and further traction with DR and brand marketers. Our 4Q18 revenues/adj. EBITDA of $392M/($79M) are slightly above Street’s expectations of $377M/($85M). Recall, revenue/adj. EBITDA guidance was $335-380M/($75M)-($100M), but mgt pre-announced that it would come in “slightly favorable” to the high-end of prior guidance when it disclosed the resignation of CFO, Tim Stone. Our estimates imply y/y revenue growth of ~37% and EBITDA margins of (20%),” the analyst added.

All in all, Squali reiterates a Hold rating on Snap shares, with a price target of $8.00, which represents a potential upside of 17% from where the stock is currently trading.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 19.5% and a 67% success rate. Squali has a -5.2% average return when recommending SNAP, and is ranked #60 out of 5156 analysts.

Wall Street believes Squali is smart to play it safe when it comes to Snap’s prospects ahead. Out of 17 analysts polled by TipRanks in the last 3 months, three are bullish on the stock, 13 remain sidelined, and one bearish. With a slight upside of nearly 5%, the stock’s consensus target price stands at $7.37. (See SNAP’s price targets and analyst ratings on TipRanks)


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