Stifel upgrades Snap Ahead Of Earnings

The bullish case for Snap Inc (SNAP) is based partly on a cautious second-quarter guidance and encouraging trends, according to Stifel.

The Analyst

Stifel's John Egbert upgraded Snap from Hold to Buy with a price target lifted from $13 to $17.

The Thesis

Snap's management guided its second-quarter revenue to come in at $335 million to $360 million but reflects a certain degree of "caution," Egbert wrote in the note. Specifically, the guidance includes potential disruption from a sales force reorganization in the quarter. If the changes had a minimal impact, guidance could prove to be conservative.

In fact, Egbert said Snap's ad products look to be gaining momentum with large brands and direct response advertisers as the features "grow in sophistication." Stifel's propriety checks into audience, app downloads, and search trends point to the potential for Snap to add 3 million new daily active users (DAUs) in the second quarter, which is 1 million above the Street's consensus estimate.

The proprietary checks also show Android user growth trends turned positive in April and momentum expanded into May and then softened in June against a "difficult" May comp, the analyst wrote. During Snap's post-earnings conference call management is discussed to provide further commentary on the Android redesign.

Egbert said Snap's DAU trends in the second quarter are "fairly evident" although positive developments in the ad business look to be "relatively overlooked." Bid rates for Snap Ads are now stabilizing after "steady" declines since 2017 while demand for higher-value ad units (i.e unskippable ads) is now "broadening" which could be accretive to revenue.

Price Action

Shares of Snap were trading higher by 2.4% at $14.50 Tuesday morning. The company reports earnings after the closing bell.