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Credit Suisse: Snap's Value Creation Strategy Is Similar To Facebook

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Credit Suisse: Snap's Value Creation Strategy Is Similar To Facebook
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Snap Inc (NYSE: SNAP) users revolted over this quarter’s platform updates, and while the full defection rates are yet unknown, Snap can count on at least one enduring fan.

The Rating

Credit Suisse analyst Stephen Ju maintained an Outperform rating on Snap and increased the price target from $20 to $21.

The Thesis

Although he regards sequential daily active-user growth of 3 million “too conservative” of an estimate, Ju said it's too early to determine the final impact of Snap’s unpopular app update and declined to increase Credit Suisse's metric forecasts. (See the analyst's track record here.) 

“We do note that Snap has recently reversed some of these changes, which in our view de-risks a potential shortfall in users on the 1Q18 result." 

Ad checks revealed larger advertisers have marginally increased their budgets on relatively stable pricing, which Ju inferred to mean that Snap's revenue growth is being driven by smaller clients and a swell in supply.

The strategy is “a playbook similar to Facebook's value creation cycle as it ramped monetization,” the analyst said. 

Ju justified his overall bullishness with Snap’s unique accessibility to a young demographic; its capacity for margin expansion on compound annual revenue growth that exceeds cost-of-sales CAGR; and a favorable risk-reward in its share levels.

Price Action

At the time of publication, Snap was trading up 3.17 percent at $15.30. 

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Latest Ratings for SNAP

DateFirmActionFromTo
Oct 2018JefferiesMaintainsHoldHold
Oct 2018Canaccord GenuityMaintainsHoldHold
Oct 2018JP MorganDowngradesNeutralUnderweight

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