Snap's Long-Term Growth Trajectory Is Bullish, But Near-Term Is Concerning

Snap Inc (NYSE: SNAP) has a considerably large and growing user base.

While the long-term growth prospects appear bright, Snap is still “unproven as a public company,” and the company’s key metrics may fluctuate significantly in the first few quarters, Barclays’ Ross Sandler said in a report.

Sandler initiated coverage of Snap with an Equal-Weight rating and $24 price target. He mentioned that despite being “bullish on the growth trajectory,” the neutral stance on the stock was due to:

• The “long history of newly public internet companies going through rough patches post-IPO”
• Snap’s stock offered little valuation support in any kind of challenging scenario

Positives

Investors can participate in the early and rapid revenue growth of Snap, even more than they could have for Facebook Inc (NASDAQ: FB) and Twitter Inc (NYSE: TWTR) during their IPOs, Sandler mentioned.

“Management has an unmatched ability in product innovation, which should accelerate going forward & continue to drive user growth,” the analyst wrote. He expects the company to easily generate more than $3 billion in revenue mainly from higher ad load.

Related Link: Snap's Millennial Audience, Ad Potential Drive This Bullish Outlook

Concerns

Sandler expressed concern regarding the following:

• Snap has to compete with Facebook
• Snap is still sub-scale
• DAUs [daily average users] decelerated when Instagram launched Stories
• The stock already reflects significant future success

“DAU growth has been driven by innovations like Stories & Lenses, and it is not clear if future product will have the same impact,” the analyst pointed out. He further mentioned that Snap’s ads were higher priced and had low completion rates.