Top Analyst Bullish on Snap Inc (SNAP) Amid Slower-Than-Expected New Advertiser Adoption Growth

Oppenheimer top analyst Jason Helfstein tweaks his estimates on Snap Inc (NYSE:SNAP) in light of the social network giant facing some growth challenges circling new advertiser adoption. However, the analyst remains bullish on the big picture and issues an Outperform rating listing a price target of $23, which represents an upside of nearly 18% compared to where last closed.

Among the few “headwinds” hovering over the giant, the analyst underscores restricted 3P data and safety matters regarding story ads, causing Snap’s new advertisers’ adoption rate to accelerate at a slower than expected pace. Yet, Helfstein believes these problems will be fixed over time and subsequently cuts revenues by $5M for the second quarter of 2017 while adding that same amount back to his expectations for the fourth quarter.

Notably, Snap launched a self-service platform roughly one month ago, enabling the company to penetrate a new advertising clients’ category, the Small Medium-sized Businesses (SMBs). Helfstein points out the company’s current Application Program Interface (API) does not fit SMBs. The self-service platform will advantageously serve as a tool to overcome this issue, although the analyst indicates the credit card payment will only be available starting in July.

Additionally, the industry big fish introduced Custom Stories at the end of May, which through the eyes of the analyst “should increase engagement.” However, Helfstein finds the impact of Custom Stories too soon to judge.

“Because of SNAP’s focus on users under 25, there is limited accurate third-party data on MAU and mins/user. However, we note that US Android engagement improved in April, to 80% of iOS, vs. 55% during April 2016 (mins/UV). We believe this reflects management’s effort to improve low-end Android device performance, low-hanging fruit in our view,” continues the analyst.

Lastly, Helfstein lifts non-cash stock compensation taking under account $1.3 billion of pre-2017 RSUs amortized throughout a three-year period, pointing out half of these costs will surface this year.

Overall, the analyst concludes, “While existing advertisers’ spending is strong, new advertiser adoption has been somewhat slower than expected. However, full roll-out of self-service ad manager in July should accelerate new advertiser adoption in 2H. Agencies acknowledge that SNAP is the platform to reach a young audience. However, the focus on platform-specific video ads and limited 3P data is a near-term headwind as new advertisers move up the learning curve. While accurate 3P engagement data is limited, we note improved US Android engagement relative to iOS in April. In conclusion, we remain bullish on 2H revenue ramp with back-to-school, new ad products (AMZN example) and the industry shift to shorter length video ads.”

According to TipRanks, a financial engine that measures and ranks analysts’ and bloggers’ performance, top analyst Jason Helfstein is ranked #147 out of #4569 analysts. Helfstein has a 63% success rate and generates an annual yield of 12.4%. When recommending SNAP, the analyst earns a 8.3% average profit on the stock.

TipRanks analytics show SNAP as a Hold. Based on 38 analysts offering recommendations for this share, 13 issue a Buy, 18 maintain a Hold and 7 recommend a Sell. The 12-month average price target stands at $21.71, making a nearly 11% upside from where the stock is currently trading.

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