Analyst Undeterred: JMP Maintains Outperform Rating On Snap

Undeterred by light DAU net additions and below-consensus first-quarter revenues reported by Snap Inc (NYSE: SNAP), JMP Securities maintains its Outperform rating on the shares of the company, with a $28 price target.

User Engagement Encourages

Analysts Ronald Josey, Andrew Boone and Shweta Khajuria said, though they would have preferred DAU net additions to come at least in line with expectations, engagement continues to ramp, with users now spending an average of 30+ minutes per day. The analysts also noted that the performance issues on Android impacting DAU growth appear to be improving as Android net adds doubled sequentially.

JMP Securities also referred to the 286 percent year-over-year growth in ad revenues, with ARPU of $0.90, ahead of its $0.81 projection.

"We were encouraged to hear that newer products, such as Search, World Lenses, and greater Discover content, are driving engagement high," the firm said. Additionally, the firm noted that gross profit turned positive in the quarter, as hosting costs declined, given newly signed five-year contracts with Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s Google Cloud Platform and Amazon.com, Inc. (NASDAQ: AMZN)'s AWS.

Updating Estimates

JMP Securities reduced its 2017 DAU estimate by 2 percent to 180 million, but increased its revenue estimate by 6 percent to $1.05 billion and improved its EBITDA loss estimate by 5 percent to $645 million and proforma loss estimate to $0.48 from $0.55 previously.

Concluding, the firm said it would take advantage of the current dislocation in the shares in the aftermath of the mixed quarterly results, based on its view that engagement continues to grow, Snap can close the ARPU gap with Facebook Inc (NASDAQ: FB), the early success of Snap's API and the pending launch of self-service.

At the time of writing, Snap shares were down 19.10 percent at $18.59.

Related Links:

Snap IPO Lock-Up Period Said To Be 12 Months; Why So Long?

A Look Back At Snap's Final Year As A Private Company