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Pivotal: Snap No Longer A Sell, But Stock Could Still Fall

Pivotal: Snap No Longer A Sell, But Stock Could Still Fall
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Shares of social media company Snap Inc (NYSE: SNAP) briefly fell below $9 per share Wednesday and are now trading at a more balanced risk-reward profile for the longer-term, according to Pivotal Research Group. 

The Analyst

Pivotal's Brian Wieser upgraded Snap from Sell to Hold with an unchanged $9 price target.

The Thesis

When Snap began trading for the first time in early 2017, multiple risks were evident, including "underwhelming" user and usage trends along with a younger audience niche, Wieser said in the upgrade note. (See the analyst's track record here.) 

At the company level, Snap's management led a "suboptimal corporate structure" with the absence of the necessary skills needed to transition a new product into a successful company, the analyst said. Snap was more akin to a venture-stage entity rather than a mature public company — a reputation that arguably still holds true today, he said. 

Yet the stock has fallen to Pivotal's $9 price target, which was first established in May 2017 and lifted to $10 in January 2018 before being dropped back down to $9 in April, which implies the bearish case for the stock is unjustified. 

Today's trading level "appropriately balances" near-term downside risks with longer-term potential, including the following, Wieser said:

  • $2.8 billion in revenue in 2022.
  • A long-term 30-percent adjusted EBITDA margin.
  • $500 million of combined capex and acquisitions.
  • Cash flow of around 16 percent of revenue.
  • Declining costs of capital as the company matures.

Price Action

Snap shares were trading down 0.11 percent to $9.19 at the time of publication premarket Thursday. 

Related Links:

Jefferies Cautious On Snap, Says Trends Are 'Not Encouraging'

Wedbush Turns Bullish On Snap, Expresses Increased Confidence In Corporate Governance

Latest Ratings for SNAP

Jan 2019RBC CapitalDowngradesOutperformSector Perform
Jan 2019CitigroupUpgradesSellNeutral
Jan 2019Cowen & Co.UpgradesUnderperformMarket Perform

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Posted-In: advertising Brian Wieser Pivotal Research Group SnapChatAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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