Aegis Capital’s Victor Anthony reported App Tracking data indicate the daily active user growth for Snap Inc SNAP continued to decelerate in the first two months of the first quarter of 2017.
The analyst maintains a Hold rating on the company, with a price target of $22.
DAU Growth Slowing
The data also suggested that DAU growth for the sample stood at 3 percent year-on-year for January and February combines, as compared to 15 percent in Q4 2016, 34 percent in Q3 2016, 53 percent in Q2 2016 and 42 percent in Q1 2016.
“While the historical growth rates from the tracker differs from Snap’s reported DAU growth rates the trends are directionally consistent,” Anthony explained.
In addition, the analyst noted that the delta in the growth rates, as indicated by the App Tracker data, is “remarkably close” to the actual reported results.
“While we had not modeled a reacceleration of growth in 1Q17, it is worth noting that Snap stated this in the S-1 about user growth in 4Q 2016: “The rate of net additional Daily Active Users was relatively flat in the early part of the quarter ended December 31, 2016, and accelerated in the month of December,”” Anthony went on to say.
Instagram Outpacing Snapchat
The tracking data also indicated that the acceleration in growth of net additions in December, although partly due to seasonality, did not persist into 2017.
On the other hand, Instagram’s DAU growth has been almost twice that of Snapchat so far in Q1 2017, indicating that Facebook Inc FB's Instagram remains a strong competitor for Snapchat.
Based on conversations with marketers, the analyst believes Snap is likely to capture advertising market share, with more and more advertisers experimenting with advertising on the app.
“However, if Snap fails to reaccelerate its user growth rate, its valuation could be negatively impacted,” Anthony added.
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