Top Analyst: Snap Inc (SNAP) Presents Value Considering Its Young, Engaged User Base, But Metrics Have Not Trended Favorably

Canaccord's Michael Graham sees some positives at play for Snap, but ultimately sees 14% downside potential at the end of the day.

How does Snap Inc (NYSE:SNAP) fare in this month’s internet dashboard assessment from the eyes of top analyst Michael Graham at Canaccord? Considering the millennial darling of the social media court experienced a roughly 10% drop in the span of November with a less-than-stellar third quarter print largely underperforming the Street, Graham is choosing to play it safe on Snap.

With daily active user (DAU) and average revenue per user (ARPU) gains winding down at an even more rapid-fire rate of decline than expected, the analyst reiterates a Hold rating on SNAP stock with a $12 price target, which represents a just under 14% downside from current levels.

In the third quarter, DAU growth waned to 16% year-over-year, a drop from 21% seen in the quarter before. Meanwhile, while North American the rest of the world’s (ROW) DAUs each experienced 2 million in sequential growth, European DAUs landed flat.

Graham notes, “With difficulty attracting Android, older, and international users, Snap is redesigning its app with surfacing personalized content in mind. Despite not giving any timeline at the time of its Q3 earnings call, the company has already announced that the new app will start rolling out December 1. Though user metrics have trended in a disappointing direction, we think the earlier than expected release is a positive sign (with some favorable press commentary already too). On the advertiser side, the shift to programmatic is driving pricing down.”

While positively, Snap ad impressions metrics fired up from 20% seen in the first quarter to 60% in the second quarter to 80% in the last quarter, the analyst adds a note of apprehension here: “While uptake has seemingly been rapid, it is leading to pricing and, in turn, revenue growth pressure.” Moreover, CPMs hit a 20% dip sequentially and 60% year-over-year, which Graham attributes to sluggish revenue growth dialing back to 39% year-over-year in the third quarter. Yet, the rising number of ad impressions “has been able to offset this somewhat” for Snap, highlights the analyst.

Moving forward, Graham contends: “One way to improve this dynamic is to add more advertisers to increase the density of auctions. We think the platform remains inherently valuable due to its young and engaged audience and the possibility to work through programmatic growing pains and become a go-to digital ad buy.”

Michael Graham has a very good TipRanks score with a 63% success rate and a high ranking of #116 out of 4,739 analysts. Graham yields 16.3% in his yearly returns. When recommending SNAP, Graham earns 0.0% in average profits on the stock.

TipRanks has pooled data from across the Street, compiling analytics covering the last 3 months of rating that point to a verdict backing the top analyst’s caution on the social media stock: a consensus Hold rating. Out of 23 analysts, 5 are bullish on Snap stock, 12 remain sidelined, while 6 are bearish on the stock. The 12-month average price target stands at $13.13, marking a 5% downside from where the stock is currently trading.

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