Snap Inc (NYSE:SNAP) remains an ugly duckling of stock picks on Wall Street, but one that could become a swan. Top analyst Youssef Squali at SunTrust highlights what he sees as “work in progress till” over at this tech player’s headquarters, which could gain advantage from a true C-suite bolstering; especially in terms of its “tentative strategy.” For context, c-suite or c-level alludes to a company’s top senior executives, such as a chief executive officer, whose titles often start with the letter C.
As such, but still recognizing that “valuation’s still rich,” the analyst reiterates a Hold rating on SNAP stock with a $13 price target, which implies a close to 22% upside from current levels.
“We believe CEO Spiegel’s acumen for product innovation has been impressive, especially in the face of a blistering onslaught from FB. However, considering the rocky stock performance since IPO, due in our view to earnings misses, personnel churn, muddled corporate direction, and Street expectations not being properly calibrated, we wonder if Snap wouldn’t benefit from C-suite reinforcement beyond the new CFO, especially considering recent key departures in sales, engineering, product, making execution against a long list of on-going challenges that much more difficult,” writes Squali.
After all, it is not that the analyst does not see potential in the social media darling that reigns the millennial court. However, the redesign sparked a series of moments where Snap has thrown a wrench in the enthusiasm behind its name: “Snap has a proven track record for providing its users with a steady flow of fresh and innovative ideas, but since the announcement of the redesign, we feel Snap has gone back and forth on several key features, calling into question its previously unshakeable confidence, and long-term outlook.”
Specifically, Squali points out the company has revised its ad philosophies from skippable ads to retargeting; reversed many of the redesign’s initial tweaks; evolved quickly from direct ad sales over to programmatic; courted the interest of influencers “after ignoring them;” and lastly, prospectively recalibrated its feed from algorithmic to reverse-chron.
The path Snap has had to confront since its initial public offering has not been a smooth one, which is yet another reason Squali suggests strengthening of the C-suite. Keep in mind, tech titan rivals of the likes of Google and Facebook have had a key advantage over Snap: “the steady hand of veteran operators.” In turn, Snap’s team hinges largely on “young founders,” and for a “high volatility company,” perhaps just what the social media titan needs could be some fresh “diversity of opinions and experience,” argues Squali. Better senior employee retention could be Snap’s ticket to “much needed stability and leadership,” especially when competition roars at a high amid a slew of hurdles for the company’s team.
Another point that keeps Squali on the sidelines: poor communication between Snap’s team and the Street, somewhat on back of the company’s choice to not issue guidance on future performance. In reaction, the analyst sizes up Street expectations that wildly “vary.” For 2018, Wall Street angles for $1.07 to $1.32 billion in revenue with an even bigger range for 2019: $1.41 to $2.01 billion. Likewise, this applies to EPS expectations, with consensus setting expectations between $(1.31) and $($0.85) in EPS for this year and $(1.39) to $(0.41) by next year. To put it simply, even some hint at guidance could do so much in lessening volatility when it comes to both earnings and Snap shares, concludes Squali, who remains optimistic thanks to fresh leadership under new CFO Tim Stone.
Youssef Squali has a very good TipRanks score with a 73% success rate and a high ranking of #47 out of 4,810 analysts. Squali yields 21.7% in his annual returns. However, when recommending SNAP, Squali forfeits 5.2% in average profits on the stock.
TipRanks reveals caution tinted with positive sentiment on the Street among sell-side analysts on this millennial tech darling’s market prospects. Out of 21 analysts polled in the last 3 months, Wall Street is a battle split between the bulls and the bears: 5 are bullish on Snap stock, 11 remain sidelined, while 5 are bearish on the stock. Yet, it appears higher expectations are baked into these analysts’ target expectations. Consider that the 12-month average price target stands tall at $13.63, marking 27% in upside potential from where the stock is currently trading.