Snap (SNAP) Beats Q1 Estimates Amid 'Robust Ad Environment,' Analysts Raise Numbers and PTs

April 23, 2021 8:18 AM EDT
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Price: $52.59 -2.74%

Rating Summary:
    39 Buy, 14 Hold, 3 Sell

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    Up: 28 | Down: 11 | New: 10
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Shares of Snap Inc (NYSE: SNAP) are up over 4% in pre-open trading Friday after the company easily topped market expectations for Q1.

The social media company said it had a loss of $287 million for the quarter, better than a loss of $306 million a year ago. On an adjusted basis, Snap reported a break-even quarter for profit, which is again better than an expected loss of $0.06 per share.

“We began 2021 by achieving our highest year-over-year revenue and daily active user growth rates in over three years during the quarter, and delivering positive Free Cash Flow for the first time in Snap’s history as a public company,” said Evan Spiegel, CEO of the social media business.

“The strength of our business underscores our relentless focus on product innovation and is a testament to our team’s ability to execute well together over the long term.”

Revenue also topped market estimates as it was reported at $770 million while the surveyed market analysts were calling for $743.8 million. For the first time ever, Snap reported positive free cash flow ($126 million).

Global daily active users (DAUs) surged 22% to 280 million to beat the consensus of 274.62 million. The average revenue per user (ARPU) came in at $2.74 to top the $2.72 the analysts expected.

The company is projecting to add a further 10 million daily active users globally in Q2. Moreover, Snap expects to see its adjusted profit to arrive between negative $20 million and break even.

Discussing the Q1 earnings report, Morgan Stanley analyst Brian Nowak outlines 5 key takeaways.

  1. Re-Opening Tailwinds Startingto Swirl: MS expects this to be a tailwind to SNAP engagement and monetization through re-opening;
  2. Advertiser Traction Remains Strong: SNAP's advertiser base roughly doubled Y/Y in 1Q;
  3. Augmented Reality Offerings/Adoption Growing...With Monetization Buds/Ideas Starting To Show: While the market talks quite a bit about shopping on Facebook and Pinterest, MS sees Snapchat's AR offerings as another potential driver of social commerce;
  4. Spotlight Engagement Also Strong, Highlighting Platform Runway: Nowak sees a path for Spotlight to generate ~$1bn of annual incremental US revenue by '24; and
  5. Solid Opex Discipline, But Expect Investment to Continue; MS sees all of these trades as long-term accretive if they drive engagement and monetization.

Novak maintained “Overweight” on SNAP and raised PT to $75.00 (from $74.00), while the new price objective under the bull-case scenario is $99.00.

BofA analyst Justin Post also raised the price target to $70.00 per share from earlier $67.00 after a “solid quarter” on the back of the “robust ad environment.” A new PT on a Neutral-rated SNAP is $70.00 per share from $67.00.

“We continue to see multi-product progress and opportunity to increase revenue per user, but prefer bigger cyclical beneficiaries with lower valuations and easier comps ahead in ’21. We raise our PO to $70 from $67 based on an unchanged, and very healthy, 20x P/S multiple on higher 2022 revenue estimate. Stock risks remain IDFA sentiment, TikTok driven ad price deflation, valuation, and expectations for 2022 revenue upside,” Post said in a note.

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