Snap Inc Stock Soars On Ad Auction Strength, Analysts Put Things In Perspective

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Snap Inc (NYSE:SNAP) shocked Wall Street by beating expectations for daily user growth in Q4, sending its stock soaring after the earnings release. Multiple analysts raised their price targets for Snap stock on Wednesday, but most are not yet ready to upgrade it beyond Neutral (or the equivalent). Progress in the Snap ad auction platform was a key area of focus among analysts.

Deutsche Bank analyst Lloyd Walmsley said in a note about the Q4 Snap earnings release that although he had picked up improving user trends before the release, the company also showed strength in advertising, which he called a “complete surprise.” He believes the strength was driven by small- to medium-sized businesses. He said he was “impressed” with the improving ad auction activity, although he noted that some of the Q4 strength may have been due to seasonality.

He also pointed out that the new Android app helped drive Snap’s user strength, and he believes the improvements could even result in a more sustained ramp in daily users. Further, he said that the new Android app appears to especially be attracting older demographics, which he said is especially important. Retention of new Android users was up 20% year over year due to the redesigned app. Walmsley maintained his Hold rating on Snap stock.

Oppenheimer analyst Jason Helstein is at the opposite end of the spectrum on Snap stock with an Outperform rating, and he raised his price target from $14 to $19 per share after the earnings release. He noted that ad impressions on Snap’s platform were up 575%, and 90% of those ads were sold programmatically, versus only 10% in Q1 2017. Snap also launched Promoted Stories in Q4 2017, and user engagement there was strong as well.

Canaccord Genuity analyst Michael Graham also noted progress in the Snap ad auction platform, but he said that auction density is the key question for this year. He noted that the company’s new ad products such as Promoted Stories and greater emphasis on paid installs, direct response ads and small- to medium-sized businesses were key drivers of the 72% increase in revenue. In all of Q4, advertisers could only use the Snap ad auction platform, Ad Manager, to buy Snap Ads. Graham maintained his Hold rating and raised his price target for Snap stock from $12 to $16 per share.

Piper Jaffray analyst Sam Kemp said that the Q4 Snap earnings release shows that the company is indeed making progress, although he added that much of the beat was the result of dramatically lowered expectations. He said that in the context, monetization was “decent,” and the progress seems to be mostly coming from momentum among advertisers engaging with the Snap ad auction platform.

He feels that the dramatic increase in Snap stock is an overreaction, however. He explained that although it is on a better trajectory than it was in Q3, it would have missed revenue estimates for North America by 9% and daily users by 2% if the Street had not slashed estimates after the Q3 earnings report.

Snap stock skyrocketed by nearly 50% in intraday trading on Wednesday, climbing as high as $21.22 per share.