Snap Inc (NYSE:SNAP) shares are crashing 21% in pre-market trading today on the heels of what GBH Insights analyst Daniel Ives shakes his head as a “disappointing” third quarter performance digging “another step backwards” for the tech player.
Just how bad was Snap’s quarterly print? Consider that the popular Snapchat app parent company’s “all-important” daily active user (DAU) number reached just 4.5 million, a far cry below the analyst’s expectations looking for 9 million, bringing Snap’s total DAU on a 3% sequential bump up to 178 million, under Ives’ forecast of 182 million. Whereas the Street called for $236 million in total revenue, Snap delivered an underclass of $208 million, with EPS of ($0.36) worse than the Street’s ($0.33). North America was a weak point for Snap, with average revenue per user also underwhelming the analyst’s expectations of $1.24 with merely $1.17, although Europe and the rest of the world (ROW) showed better stability.
Ives underscores, “We note with SNAP not giving guidance, Street expectations are all over the map and remain a frustration among investors that further clouds the story. Overall, this quarter was soft across basically every metric as it speaks to a business model which is in a state of major transition since going public, as SNAP looks to steady DAU growth and significantly improve advertising growth heading into 2018 on the heels of newer organic initiatives (self service platform) and better engagement trends. The shift to programmatic ads is clearly hurting SNAP as it undergoes this transformation with ad rates dropping off a cliff year over year and the company having an Everest-like uphill battle getting new advertisers onto the platform.”
Ultimately, “We view 3Q as a sign this story is still a few quarters away from finding an inflection point in growth, with patience starting to wear very thin among investors, as the value of the business model and ~180 million DAU remains a major asset that now must be monetized going forward,” contends Ives, finding that the true “Achilles heel” and “hot button issue for investors” growing impatient points to a combination of DAU growth, monetization prospects, and engagement potential- all of “which clearly did not materialize this quarter.”
As such, the analyst reiterates an Attractive rating on SNAP stock with a price target of $18, which represents a close to 52% increase from where the stock is currently trading. (To watch Ives’ track record, click here)
The Street is undecided on whether Snap is a millennial darling worth the risk or if its past three rocky quarters ever since having gone public detract from its possible reward, with TipRanks analytics indicating SNAP as a Hold. Based on 28 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on Snap stock, 15 maintain a Hold, while 5 issue a Sell on the stock. The 12-month average price target stands at $14.98.