Shares of Snap Inc. (SNAP) are sliding after the parent of Snapchat reported quarterly results for the first time as a public company, posting lower than expected revenue and announcing slower than expected user growth. Following the news, several Wall Street analysts cut their targets on the shares, while Oppenheimer and Cantor upgraded Snap to Outperform and to Neutral, respectively.
RESULTS: Last night, Snap reported first quarter revenue $149.65M, which was worse than the expected $157.98M. The company also announced that first quarter daily average users, or DAUs, were up 36% year over year to 166M, and up 5% quarter over quarter. Additionally, first quarter average revenues per user, or ARPU, was up 181% year over year, but down 14% quarter over quarter to 90c.
SNAP UPGRADES: In a post-earnings note, Oppenheimer analyst Jason Helfstein upgraded Snap to Outperform from Perform, with a $23 price target on the shares, after the stock fell in after-hours trading on quarterly results. Many analysts ignored Snap's prospectus disclosure that suggested sequentially declining revenue in the first quarter, the analyst told investors, while noting that the company's products will continue to be made "for universal use, not tailored toward on-boarding older users." His peer at Cantor also upgraded the stock this morning to Neutral from Underweight, with a $17 price target, citing similar reasons. Analyst Kip Paulson said in a note of his own that although intense competition for users and digital brand dollars from entities such as Facebook (FB), Alphabet's (GOOG; GOOGL) YouTube, and Twitter (TWTR) may continue, Snap still has a rich and engaging canvas for brand advertisers that are targeting the hard-to-reach, but "highly desirable," 18-34 year-old demo, and valuation has improved post selloff.
ANALYST DEFENSE: Meanwhile, JMP Securities analyst Ronald Josey recommended buying Snap on weakness, arguing that its engagement continues to increase, and as he continues to believe the company's ARPU can rise closer to that of Facebook. Jefferies analyst Brian Fitzgerald also kept a Buy rating and a $30 price target on Snap's shares, highlighting the company's DAU and ARPU growth year over year. While he acknowledged that expected seasonality in revenue led to a quarter over quarter decline in ARPU, he expects Snap to buck that trend as it continues to drive engagement and offers advertisers better targeting capability. Moreover, the analyst said he sees opportunities to increase ad load and noted that Snap's asset light business model allows the flexibility to focus on innovation.
PRICE TARGET CUTS: Not all analysts were as bullish on Snap after earnings, with many lowering their price targets on the shares. JPMorgan analyst Doug Anmuth was one of them, cutting his price target for Snap to $20 from $24 and noting that he believes the Street wanted more quarter over quarter revenue growth. The analyst also pointed out that it is "very early for the business side of Snap" as there is still a "tremendous amount to do," especially in building out the ad platform. He reiterated a Neutral rating on the stock. His peer at Piper Jaffray also lowered his price target on Snap's shares to $20 from $23, while keeping a Neutral rating on the name, as he sees its user growth and ad load ramp as being "underwhelming" given the company's valuation. Further, analyst Samuel Kemp said he views the company's valuation as baking in "massive success" in scaling ad load and no negative ramifications from expanding use cases at Facebook's properties. Additionally, Barclays, Deutsche Bank and Citi cut their price targets for Snap this morning to $18, $23 and $24, respectively.
PRICE ACTION: In afternoon trading, shares of Snap have plunged over 21% to $18.04. After pricing its IPO at $17 per share on March 2, Snap finished its first day of trading with an advance of about 44%, closing at $24.51 per share.
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