Snap (SNAP) reported Q4 earnings Tuesday, as investors rejoiced in what was seen as the first bit of positive news in a long time. The parent of social-network app Snapchat posted a 36% gain in revenue, while significantly decreased its operating loss. The company also reported that non-US/European revenue surged, which is important for a company that has had seen the majority of its success coming from the Western world. The strong numbers made investors very happy, as the stock shot up over 20%.
But challenges are still ahead of Snap, as revenue growth is accelerating, while the company’s burn rate continues to rise. And of course, the company is still competing against Facebook, which has proven extremely capable of gaining users by using Snapchat features as their own. So while recent past performance was strong, the future is slightly murky. As a result, SunTrust analyst Youssef Squali maintains his Hold rating and $8 price target
Squali says, “Snap’s top and bottom line numbers were higher than Street expectations and inline with management’s commentary, which it provided in early January for ‘slightly favorable’ to the high-end of guidance.” He is impressed that “losses were trimmed as 100% of incremental revenues dropped to the bottom line on a relatively flat cost structure.”
Snap has been able to drive revenue by increasing “premium ad inventory through its Discover product,” while “new ad products such as Commercials and Collection Ads” also played a part in rising revenue. Squali says that Snap Pixel — Snap’s tool that helps see the impact of their ads — also saw further adoption.
While financials were strong few the company, Squali points out that “Snap reported flat DAUs q/q and down 1M y/y.” He says this is mainly due to “underperforming Android app,” which the company has been working on for over a year. Android is extremely important for the company as it continues to branch out to non-US/European markets, as the operating system is more-widely used in these regions than it is Western countries. Squali says “Snap has prioritized engineering resources to complete the Android app overhaul and it is currently being tested.”
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 20% and a 68% success rate. Squali has an average loss of 5.2% when rating Snap and is ranked #55 out of 5,162 analysts.
Even with the positive readout, Wall Street is not betting on Snap. TipRanks analysis of 26 analysts shows a consensus Hold rating on the stock, with only three recommending Buy, 20 saying Hold and three selling. There 12-month price target average is $8.27, representing a 5% decrease from current levels. (See SNAP’s price targets and analyst ratings on TipRanks)