Snap Soars as Analysts Say Results Validate Turnaround View

(Bloomberg) -- Snap Inc. shares soared on Wednesday after the company reported user growth that was well ahead of expectations, cementing the growing view that the social-media company was undergoing a pronounced recovery.

Analysts raved about the results, and a common theme was that the company’s progress “cannot be ignored” any longer, in the words of UBS, which upgraded its rating and raised its price target. The average target has jumped to $16, or more than twice the $7.18 average Snap had in early February, according to data compiled by Bloomberg.

Shares gained as much as 17.5% to $17.43, the highest level for the stock since March 2018. It also returns Snap above its IPO price of $17. The stock has climbed more than 240% since a December low. While analysts were essentially unanimous in their praise, some enthusiasm was tempered by Snap’s valuation following the 2019 rally.

Here’s what analysts are saying about the results:

UBS, Eric Sheridan

Upgrades to neutral from sell and doubles price target to $16 from $8.

“We must acknowledge the turnaround in underlying operating trends,” including on the key issues of user growth, revenue and leverage. While the valuation is “challenging,” the company’s progress “cannot be ignored.”

Rosenblatt Securities, Mark Zgutowicz

New products are “beginning to gain momentum as reflected in DAU and ARPU growth,” referring to daily active users and average revenue per user.

Buy rating. Price target raised to a Street-high view of $21 from $18.

Pivotal Research Group, Michael Levine

The quarter was “way stronger than we anticipated” and confirms that Snap “is hitting an inflection point.”

“We were in early innings of the turn in the business, and suspect there will be more strong upside surprises” in the second half of 2019 and beyond.

Buy rating, target raised to $20.50 from $17.25.

Morgan Stanley, Brian Nowak

“We don’t deny SNAP is executing at a materially higher level and have been wrong on the name this year.” However, “our concern is the multiple this company is likely to be able to grow into from here.”

The current valuation “speaks to multiple compression even if SNAP delivers” on higher expectations. It needs “continued innovation” and “big beats” relative to expectations to continue seeing upside.

Underweight rating, price target raised by $1 to $14.

Deutsche Bank, Lloyd Walmsley

“Case studies of turnarounds in the Internet space are sparse, and Snap seems to be executing one.”

The firm is “thoroughly impressed with the trajectory the company is on,” noting its strong execution on ad products, user growth, and cost control.

Price target raised to $16 from $13, but hold rating affirmed “given limited upside potential.”

Nomura Instinet, Mark Kelley

The report showed “better-than-expected results across the board, even against heightened expectations.” Was surprised by user growth related to the “face-swap” lenses, “which we would have thought would be short-lived.”

Neutral rating, price target raised to $15 from $10.

Canaccord Genuity, Maria Ripps

Growth in daily active users was “encouraging,” and the trend may “continue for a couple of quarters.”

However, “given the specificity of this quarter’s DAU growth drivers, tougher user growth comps starting in Q4, and a valuation which already reflects a lot of operational improvements,” Canaccord is affirming its hold rating. Price target raised to $17 from $13.

What Bloomberg Intelligence Says:

“While we don’t expect 2Q’s user-gain strength to continue longer term, Snap has ample room to drive up revenue per user closer to that of Twitter.”

-- Analyst Jitendra Waral

-- Click here for the research

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Jennifer Bissell-Linsk

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