Snap Inc Can’t Shake This Bear, Not Even with a Strong 4Q Print

Pivotal's Brian Wieser sees no reason to substantially change his long-term model, leaving him bearish on Snap's bigger picture- for now.

Snap Inc (NYSE:SNAP) shares are rocketing 22% this morning, but one party pooper says not even a “good” fourth quarter performance can substantially change his bearish long-term perspective on the tech player.

Pivotal analyst Brian Wieser acknowledges a solid revenue beat, noting that Snap’s massive 72% revenue growth ended up outperforming even what he considered a “relatively optimistic” forecast for 64% in revenue gains for the quarter. Against Reuters consensus, the beat was even bigger, as consensus had just called for 53% growth- which explains why investors are buying shares like hot cakes today.

Yet, there was no commentary nor data that lead Wieser to “meaningfully alter longer-term variables in [the] model.”

Therefore, despite a strong quarter, the analyst reiterates a Sell rating on SNAP stock with a $10 price target, which implies a close to 42% downside from current levels. (To watch Wieser’s track record, click here)

“As before, we argue that current period growth rates matter less than what current period data and commentary suggests about longer-term trends, which were broadly consistent with our prior expectations,” explains Wieser.

Regarding revenue trends, though for the first time, advertisers beyond the scope of the Ad Age 100 comprised of over 50% of the company’s revenue, it is not all celebration on advertiser expansion. The analyst notes, “we can infer this result at least partially reflects some degree of deceleration in spending from large brands, which generally view Snap as a niche platform rather than something core to their typical campaigns.”

Domestic user-allotted revenue rose a nice 51% in the fourth quarter, which marks an upsurge considering the third quarter growth of 46% presented challenging comps to Snap. User-allotted revenue in the rest of the world experienced a significant rise factoring in 23% of total revenues against this time last year’s just 12%. Recently, Snap has backed endeavors to dial up its sales presence in new countries across the globe, and Wieser sees this trend as a reflection of these efforts.

Additionally, “Costs were high, as generally expected, but not quite as high as we forecast for this quarter. This can be viewed positively to a degree, but only to a degree: costs other than stock-based compensation amounted to 162% of revenue in the quarter and 200% of revenue for the year,” asserts the bear.

Hosting costs, expenses that comprise a majority of direct costs rose 16% for the quarter against a 25% rise in the third quarter, with hosting costs per user dipping by 3%. Revenue share reached $28 million, marking 10% of Snap’s revenue for the quarter against 13% compared to this time last year. The SNAP team anticipates costs will keep soaring by low double digits in the opening half of the new year compared to the back half of the year before. Accordingly, Wieser assesses a roughly 405 annual climb compared to the first half of 2017. Against the analyst’s revenue forecasts translating to an approximate 53% growth forecast, this hints at slightly better margins for the period.” Yet, the analyst makes a point to note he prefers not to “read too much into cost management in any one quarter (or any one year at this stage of the company’s evolution.”

In a nutshell, the analyst is staying the bearish course on his long-term expectations for Snap and concludes highlighting that his predictions continue to be “more subjective vs. other companies we cover.”

By the terminal year of 2022, the analyst looks for $3.8 billion in revenue from Snap predicting an around 30% long-term adjusted EBITDA margin. Wieser values Snap at below $15 billion.

TipRanks indicates caution is the predominant sentiment on Wall Street when it comes to this millennial social media darling. Out of 26 analysts polled in the last 3 months, 6 are bullish on Snap stock, 12 remain sidelined, and 8 are running for the hills. However, is the stock overvalued or undervalued based on these analysts’ expectations? Consider that the 12-month price target boasts upside potential of 5% from where the stock is currently trading, suggesting those playing it safe also have optimism on Snap’s prospects.

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