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

More than half of Snap Inc SNAP’s daily users are between 13 and 24, and that makes the social platform a mandatory ad buy for many brands, according to William Blair.

The firm initiated the parent company of the Snapchat app with an Outperform on Monday, joining other firms who adopted a bullish outlook after what was initially a frosty sell-side reaction to the company’s IPO.

Advertising has grown slowly at Snap, and the company possesses untapped revenue opportunities, William Blair analyst Ralph Schackart said in a note. William Blair is projecting that Snap's revenues will reach almost $2 billion in 2018, double the firm's estimate for 2017.

“In the near term, we believe the largest contributors to revenue growth will be simply increasing the number of advertising clients and ads served,” Schackart said.

Taking Advantage Of Shifting Ad Budgets

Social, video and mobile ad budgets are growing, Schackart said — at a projected compound annual rate of 21 percent from 2016 to 2021.

Snap is a mobile-only environment, the analyst pointed out, and mobile ads are estimated to account for 72 percent of global digital ad spending by 2021, up from 45 percent in 2016.

The platform could also benefit from the difficulty advertisers have in reaching teenagers and millennials through TV advertising, Schackart said. The global TV ad space is a $186 billion market that Snap could take bites from, according to William Blair.

A Competitive Field 

Snap’s core features, such as disappearing video stories, have been closely matched by Facebook Inc FB both inside its Messenger app and on its photo sharing platform Instagram.

And despite its size and name recognition, Snap is still a start-up, Schackart said.

“Snap is in the investment stage, and we expect the company to register negative EBITDA and free cash flow in 2017 and 2018.”

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