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Snap (SNAP) Is Still a Hard Pill to Swallow; Top Analyst Initiates a Neutral Rating

Monness Crespi's Brian White is out transferring coverage on Snap from the sidelines; here's why.


Though top analyst Brian White at Monness Crespi gives kudos to Snap for luring such a strong base among millennials – the usual Achilles’ heel for advertisers – the analyst still points to caution amid his optimism on the tech player. This tech darling may have won over the millennials to its budding user base, but White points out last year as a rocky period in terms of financial quarterly shows and daily active user (DAU) growth execution.

As such, the analyst transfers coverage of Snap with a Neutral rating without suggesting a price target.

“We are taking a conservative stance on Snap as we want to see more progress in delivering financial results that at least meet Street expectations, combined with further DAU execution as was delivered in 4Q17, continued improvement with Android and more granularity around the impact of the Snapchat redesign. Although 2017 proved to be challenging time for Snap given weaker than expected quarterly results on no guidance from the company, we believe the company offers a differentiating experience for its users and the Snap brand remains very strong with millennials,” asserts White.

Encouraging points for White boil down to Snap’s popularity as “the Pied Piper of the Millennials,” as well as an enticing play in the virtual reality (VR) arena. Already, Snap is a compelling play on the Augmented Reality (AR) trend, White notes, adding that this is a trend still in its opening innings- yet once development matures, this trend could prove to be even more meaningful than VR in the next years. In terms of popularity between users 18 to 34 years old, White writes, “Millennials are not easy for advertisers to reach over traditional media platforms such as TV but Snap is recognized as one of the most popular mobile applications for this demographic. […] Thus, the company is able to tap into the most desirable, largest and most difficult to reach generation.”

Fresh innovations will be crucial for this tech company, argues White, who sees this as a key driver for better engagement, translating down the line hopefully to an encouraging rise in ad dollars. This year’s main points of focus for the company from White’s stance are user gains, AR, and content, and he highly anticipates 2018 to follow 2017’s track of mounting new innovations for the platform.

This year, the analyst looks for a 55% increase in sales to $1.28 billion from the tech darling and a 48% rise in sales by next year to $1.89 billion. However, the analyst likewise is all too aware of last year’s challenges, which sank shares 17% from its initial public offering price last March- and shaved off 52% from the company’s best high. Overall, though White stands sidelined for now, Snap still shines as the “fastest growing company” in his coverage universe, as he angles for the quickest revenue gains from the company in 2018.

Brian White has a very good TipRanks score with a 68% success rate and an impressive ranking of #65 out of 4,767 analysts. White garners 15.6% in his annual returns. However, investors who follow White’s recommendation on SNAP will lose an average of 4.1% in losses on the stock.

TipRanks indicates analyst consensus backs White’s cautious opinion on Snap’s market opportunity. Out of 22 analysts polled in the last 3 months, Wall Street is split between the bulls, the bears, and the sidelined: 6 rate a Buy on Snap stock, 10 maintain a Hold, while 6 issue a Sell on the stock. However, optimism is baked into these analysts’ expectations when looking at the consensus average price target of $15.92, which reflects nearly 6% in return potential for Snap stock.