Canaccord Lifts Snap's Price Target

Snap Inc (NYSE: SNAP) reported "solid" second-quarter earnings but investors shouldn't be buyers of the stock, according to Canaccord.

The Analyst

Canaccord Genuity's Maria Ripps maintains a Hold rating on Snap with a price target lifted from $13 to $17.

The Thesis

Snap showed the addition of 13 million net daily active users (DAUs), which Rpps said represents the highest net add since 2016. The growth in users was broad based across multiple regions and all operating systems. The company said improvements in user metrics can be attributed to the launch of new augmented reality lenses and management noted it will continue to invest in its Lens Studio.

See Also: Snap's Big Q2 Not Strong Enough For Some Analysts To Turn Bullish

Video content was also strong due to recent improvements in discovery and user interface, the analyst wrote. The company released seven new premium games over the past few months, which led to a direct correlation between the number of friends playing with each other and time spent on the platform.

Snap also saw growing momentum in its ad business as ad revenue growth accelerated 920 basis points from the first quarter to 48% year-over-year. Management has a strategy to bring in more demand for ads, including integrations with third-party platforms and removing friction from self-serve ad tools.

Despite an encouraging earnings report, Ripps said Snap still faces headwinds ahead including difficult user growth comps in the fourth quarter. The stock's valuation improvement also factors in "a lot" of the operational improvements.

Price Action

Shares of Snap hit a new 52-week high of $17.43 Wednesday morning and was higher by more than 15% on the day.