Snap Carries 'Significant Risks,' Moffett Nathanson Initiates At Sell
Moffett Nathanson initiated coverage on Snap with a Sell rating and $15 price target. The firm believes the “market has officially priced SNAP for perfection” following its IPO. Analysts believe the company will mimic a Twitter Inc (NYSE: TWTR)-like trajectory over the net year as opposed from a steady rise from current levels.
While Moffett Nathanson acknowledged Snap’s high engagement and innovation potential, it sees significant risks to the story.
3 Potential Risks Facing Snap
Slowing Daily Active User Growth
“This has been a well-flaggd concern as 2H16 DAU growth slowed dramatically as competitors co-opted SNAP’s best feautres. This is no accident as we think SNAP is near the upper bound of the 13-34 year old core demo in the U.S. and we have concerns that those 35+ wont contribute meaningful engagement.”
Limited Revenue TAM
“We think there’s a limit to ad dollars targeted at SNAP’s key demos. The TAM of TV brand dollars at domestic cable nets which over index to SNAP’s demos is only $7.5bn. Unlike FB and GOOG, direct response and SMB dollars could remain largely out of SNAP’s reach.”
While Snap acknowledged this difficulty in its S-1 filing, institutions are still looking for the company to turn a profit before pegging this company as an attractive investment.
“We’ve analyzed the historic profitability of peers and think SNAP’s income statement is going to look a lot more like TWTR than FB," Moffett Nathanson said. "SNAP is years away from turning a profit. It just achieved positive gross margin and there’s no guarantee of GAAP profitability in the next 5 years (or even positive adj. EBITDA). A decade in, TWTR is still in the red.”
Despite the significant risks Snap is exposed to, Moffett Nathanson’s price target is based on ~5x 2020 revenue, still in line with the highest large-cap Internet companies. The company is expected to grow twice as fast as the best in class Internet companies like Facebook Inc (NASDAQ: FB) and Alibaba Group Holding Ltd (NYSE: BABA) by 2020.
Latest Ratings for SNAP
|Mar 2017||Loop Capital||Initiates Coverage On||Hold|
|Mar 2017||Barclays||Initiates Coverage On||Equal-Weight|
|Mar 2017||Citigroup||Initiates Coverage On||Buy|
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