Tesla Inc (TSLA) Carries a More Comfortable Liquidity Position, Snap Inc (SNAP) Has Potential But Faces Intense Competition

Though analysts seem to recognize glimmering rewards to investing in Tesla Inc (NASDAQ:TSLA) and Snap Inc (NYSE:SNAP), they overall are flashing the yellow caution light on these two players in the world of Wall Street. Nonetheless, Deutsche Bank sees reasons to raise the price target on Tesla, and Mizuho explores Snap’s potential through business and trends. Let’s take a closer look:

Tesla Could Bolster Investor Confidence

Deutsche Bank analyst Rod Lache outlines a generally wary forecast for Tesla, even with Tesla’s new $1 billion plus fundraiser objective to kick start Model 3 electric vehicles into production. Sizing up the electric car giant’s targets to be “relatively sparse” between goals to deliver 45 to 50k Model S/X vehicles during the first half of th eyear and keep spending in capex within a range of $2 to $2.5 billion prior to the Model 3 launch.

However, the analyst recognizes room for Tesla to impress in the future, and as such, he reiterates a Hold rating on shares of TSLA while lifting the price target to $240, which represents a just under 8% downside from where the stock is currently trading.

Factoring in the capital raise into his model, the analyst anticipates the giant’s cash flow will scale back to $1.8 billion by the third quarter, which he deems a “significantly more comfortable liquidity cushion.”

Lache asserts, “We believe the size and form of the capital raise could be indicators of Tesla’s confidence in the Model 3 launch (TSLA anticipates becoming cash flow positive once Model 3 volumes have ramped). A smaller raise may signal Tesla’s confidence in the Model 3 launch but may leave investors with less room for comfort.”

Additionally, in terms of the Solar City acquisition, “[…] we believe that Tesla will continue to slow its pace of MW deployment and focus on transitioning to a more cash sale centric model as they wait for the launch of the Solar Roof (later this year or early 2018),” continues the analyst.

“Looking forward, we believe the keys to growing investor’s confidence will be: 1) Execution of the Model 3 launch (i.e. timing, ramp speed, cost, quality, and gross margins); 2) Tesla’s ability to begin generating cash on a sustainable basis; 3) The impact of Model 3 on Model S/X demand; and 4) Tesla’s willingness to provide clarity into their business plan (i.e. longer term plan for capex, opex, and cash needs),” Lache contends.

For 2017, the analyst assumes the giant will produce 22k Model 3 units, with 20k of production occurring in the fourth quarter. Down the road, the analyst sees production rising to 250k Model 3 units by 2018, noting that his growth assumptions are considerably steep. For 2017, the analyst predicts Model S/X volume of 122k; for 2018, the analyst projects volume to reach 350k; for 2019, Lache forecasts volume to hit 500k; and for 2020, the analyst anticipates volume circling 650k, juxtaposed against Tesla’s own goals to produce 1 million units by 2020.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Rod Lache is ranked #270 out of 4,560 analysts. Lache has a 68% success rate and realizes 17.5% in his annual returns. When recommending TSLA, Lache yields 9.9% in average profits on the stock.

TipRanks analytics demonstrate TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 6 are bullish on Tesla stock, 5 remain sidelined, and 6 are bearish on the stock. With a loss potential of nearly 7%, the stock’s consensus target price stands at $243.38.

Snap: A Bright, Fleeting Comet, or Here to Last?

Though Mizuho analyst Neil Doshi highlights a great deal of “potential” in Snap, he approaches the popular Snapchat-app parent company from the sidelines. Unsure whether the company is on the brink of pulling the ultimate Houdini “disappearing act,” or whether it can stand the test of longevity, the analyst initiates coverage on Snap with a Neutral rating and price target of $20, which implies a 2% upside from where the shares last closed.

A great deal of Doshi’s caution stems from teeter-tottering risk/reward, as, “[…] we also see a lot of risk as competition is intensifying for users and ad dollars.”

When the IPO first rocked the Street, the analyst was “thrilled,” believing Snap “could be on a path/trajectory that was bigger and better than Twitter’s (TWTR) and could potentially rival Instagram and Facebook one day.”

Doshi notes, “But after careful examination of the business and trends, we have come away more cautious. Having lived through the rise and decline of Twitter’s stock price, we are much better informed on what slow user growth can do to a stock, or what impact a slight miss on execution or expectations can have on a high-growth company. We are already seeing the signs of slowing user growth, as daily average users (DAUs) only grew 3% sequentially in 4Q, and we are not expecting Snap to turn EBITDA profitable till 2019.”

After assessing survey results polling over 1,000 Snapchat users predominantly comprised of Generation Z and millennials, the analyst discovered 79% of users use Snapchat over twice a day just in the last week, with 21% using Snapchat over 15 times per day. “This level of engagement is quite astonishing, in our view […],” adds Doshi.

Most Snapchat users are not visiting the app for long periods at a time, with 40% spending approximately 3 to 5 minutes each time they use the app, 27% spending 1 to minutes, and 20% spending between 5 and 10 minutes. Therefore, the analyst projects users on average pass somewhere along the lines of 57 minutes each day on Snapchat, with the active users who use Snapchat the most using the app roughly 2 hours and 40 minutes daily. Considering Snap’s reported average circles 35 minutes, the analyst’s results are considerably more elevated; yet, Doshi’s results only detail domestic results, whereas Snap looks at numbers globally.

Lastly, the survey revealed 64% of Snapchat users barely are clicking on the app’s ads. “We think this could be due to a weakness in the relevance in the ads on the app,” Doshi concludes, pinpointing that 52% of users found Snap’s advertisements neither of interest nor “relevant,” with 42% somewhat intrigued, and merely 6% satisfied as far in terms of interest and relevance.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Neil Doshi is ranked #205 out of 4,560 analysts. Doshi has a 72% success rate and gains 14.9% in his yearly returns. When recommending SNAP, Doshi earns 0.0% in average profits on the stock.

TipRanks analytics exhibit SNAP as a Sell. Based on 11 analysts polled by TipRanks in the last 3 months, 5 maintain a Hold on SNAP while 6 issue a Sell. The 12-month average price target stands at $18.05, marking a nearly 8% downside from where the stock is currently trading.

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