Why This Top Analyst Just Lowered Snap Inc. (SNAP) Estimates

Following a review of Snap Inc (NYSE:SNAP) management’s commentary related to the expected growth deceleration in the second-quarter, RBC Capital’s Mark Mahaney is reducing his Q2 revenue estimates.

Specifically, 2018/2019 revenue both come down 2%, with ’19 revenue now forecast to be $1.57 billion. The Adjusted EBITDA estimates for 2018/2019 also come down 2%. Mahaney also forecasts 21MM Net DAU Adds in 2018 now, compared to 25MM assumption before.

Mahaney commented, “We felt that our prior expected growth rate was too aggressive, given the company’s call for a “substantial deceleration” in Q2 Revenue growth on the Q1 call, and commentary around DAU deceleration in March of Q1. We have therefore taken our Q2 Y/Y growth rate down to 36% Y/Y, implying 18-pts of deceleration, vs. our prior 40% Y/Y growth estimate (which implied 14-pts of deceleration). To give more detail, we think this is appropriate given that on the Q4 call management highlighted that Revenue growth would moderate in Q1, and Ad Revenue ended up decelerating 12-pts (when normalizing for the Olympics and Spectacles). In our opinion, management saying that Revenue growth would “decelerate substantially” from Q1 levels is stronger language than “moderating” and thus implies a greater deceleration than we had been modeling.”

Net net, Mahaney reiterates an Outperform rating on Snap stock, with a price target of $16, which implies an upside of 16% from current levels.

Mahaney is one of the top analysts on Wall Street covering technology, according to analyst ranking service TipRanks. His picks average a 27.4% one-year return with a 75% success rate. Notably, Mahaney is ranked #12 out of 4830 analysts.

The social messaging giant certainly has the Street divided, as TipRanks analytics indicate SNAP as a Hold. Based on 18 analysts polled in the last 3 months, 5 rate a Buy on Snap stock, 10 issue a Hold, while 3 recommend a Sell. The 12-month average price target stands at $13.04, marking a nearly 5% downside from where the stock is currently trading.


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