XAutoplay: On | Off Analysts took a mostly cautious view of Snap (SNAP) Thursday after its disappointing first-quarter results that sent the stock plunging, but officials at the Snapchat operator were in high spirits.
Delivering its first earnings report since coming public, Snap revenue of $150 million more than quadrupled from the year-ago quarter but missed the consensus estimate of $157.8 million. Snap stock cratered by 21.5% to close at 18.05 on the stock market today, after falling to a post-IPO trading low of 17.59 near the open. Snap held its initial public offering on March 1, pricing shares at 17.
Some of the disappointing results were presumably caused by Facebook (FB). The Instagram program of Facebook has steadily copied the most popular features of Snapchat. Both Instagram and Snapchat provide users with creative ways to communicate through photos and short videos on mobile devices.
Still, Snap Chief Executive Evan Spiegel laughed when asked about competition from Facebook.
“At the end of the day, just because Yahoo (YHOO), for example, has a search box, it doesn’t mean they’re Google,” he said in the conference call after earnings posted. “If you want to be a creative company, you got to get comfortable with and basically enjoy the fact that people are going to copy your products, if you make great stuff.”
Analyst reviews on Snap were mixed, including both buy and sell ratings.
“This was certainly NOT in the script for its first report as a public company,” wrote Credit Suisse analyst Stephen Ju in a report. “Although we would certainly have preferred to have seen higher daily active users reported vs. our expectations and a higher reset to BOTH our revenue and adjusted EBITDA estimates, our long-term investment thesis has not changed on the back of this report,” Ju wrote. He maintained an outperform rating on Snap and a price target of 30.
The company said late Wednesday that daily active users rose 36% to 166 million from the year-ago quarter, but analysts expressed concern that average revenue per user fell, while daily active user growth also disappointed.
Nomura/Instinet analyst Anthony DiClemente gave Snap a rating of “reduce” and lowered his price target to 14 from 16.
IBD’S TAKE: Snap has a low IBD Composite Rating of 30, out of a best possible 99, a rating that combines several proprietary IBD ratings into one measure. Big winners often have a Composite Rating of 95 or higher near the start of major share price gains. IBD focuses on the best-performing IPOs of the past three years in its IPO Leaders column
“Snap came to the public markets just as its user and monetization growth were both starting to meaningfully slow,” DiClemente wrote. “It now faces incrementally fierce competition from deeper-pocketed rivals, including Facebook, and continues to trade at a valuation that looks quite lofty to us, even considering yesterday’s aftermarket sell-off.”
Edison Investment Research analyst Richard Windsor made a comparison between Snap and Twitter (TWTR).
“Twitter is in a better position,” Windsor wrote. “A poor set of maiden results (by Snap) highlights that Twitter is actually in a better position because although it is stuck in a niche, it remains unopposed in that niche.”
Jefferies analyst Brian Fitzgerald maintained a buy rating on Snap and price target of 30, saying while seasonality in revenue led to a decline in average revenue per user from the prior quarter, “we expect Snap to buck that trend as it continues to drive engagement and offers advertisers better targeting capability,” Fitzgerald wrote.
Drexel Hamilton analyst Brian White maintained a buy rating on Snap, with a price target of 30.
“Given the size of the opportunity in front of Snap and the early stages of the company’s development, we do not believe it is constructive to nitpick on every detail of the company’s first few quarterly reports, or investors risk missing the forest for the trees,” White wrote.
Among other reports, Cowen maintained an outperform rating on Snap but dropped its price target to 21 from 26. RBC Capital Markets maintained an outperform rating on Snap and price target of 31. JPMorgan lowered its price target on Snap to 20 from 24.
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