5 Snap Analysts React To Restructuring Plan: 'Attractive Opportunity For Long-Term Holders'

Zinger Key Points
  • "We believe risk of some sales pressure is priced into the stock," said one analyst.
  • Snap is laying off 20% of its workforce.

Snap Inc SNAP shares traded higher by 15% on Wednesday after the social media giant disclosed in a new filing that it will be restructuring its business and laying off 20% of its staff.

Snap CEO Evan Spiegel told employees via a memo on Tuesday that the company needs to restructure its business to cut costs. Spiegel also said Snap's revenue growth for the quarter is just 8%, well below what the company had anticipated earlier this year.

The restructuring efforts include scrapping the company's Pixy photo-taking drone and its Snap Originals premium programming. The company is also eliminating its Snap Minis third-party apps and Snap Games.

Snap also announced a pair of management changes, promoting Jerry Hunter from senior vice president of engineering to chief operating officer and hiring Ronan Harris, Google’s vice president and managing director of U.K. and Ireland, to serve as president of Snap's Europe, Middle East and Africa region. Chief Business Officer Jeremi Gorman and head of Americas ad sales Peter Naylor are also both leaving to work for competitor Netflix, Inc. NFLX.

The Verge reported the layoffs on Tuesday afternoon before the official filing, and several analysts reacted to the news prior to Wednesday's filing.

Related Link: Netflix Poaches Two Key Officials From Snap As They Downsize Workforce Over Recession, Apple Privacy Concerns

Revenue Acceleration Opportunities: Bank of America analyst Justin Post said Snap has opportunities to accelerate its revenue growth once the economy stabilizes.

"While the macro or competitive outlook could deteriorate further in 2H, we believe risk of some sales pressure is priced into the stock, trading at 3.0x Street 2023 revenue estimate (below the pandemic valuation bottom in 2020)," Post wrote.

Benchmark analyst Mark Zgutowicz said Snap should now reach break-even free cash flow by mid-2023.

"With that said, given the strength of SNAP’s IP and near lock on the Gen Z audience (TikTok aside), we suspect public/private interest is not far from the shares," Zgutowicz wrote.

JMP analyst Andrew Boone said Snap remains an "attractive opportunity for long-term holders."

"While we acknowledge the lack of revenue visibility as the company is rebuilding a portion of its advertising measurement and targeting and as the advertising environment continues to be challenged, we believe Snap still has significant assets as it reaches 75% of 13- to 34-year-olds in 20+ countries, is well positioned to benefit from linear TV budgets shifting to digital channels, and remains a leader and highly differentiated within AR," Boone wrote.

Related Link: Downloads Of Donald Trump's Truth Social App Spike Following Mar-A-Lago Raid

Executive Poaching: Rosenblatt Securities analyst Barton Crockett said Netflix poaching top executives is bad news for Snap.

"Clearly, losing your ad sales leaders and potentially slashing staff suggest that 3Q22 is not pacing great," Crockett wrote.

KeyBanc analyst Justin Patterson said the 20% headcount reduction is larger than he had anticipated.

"While we generally believe it’s better to cut more headcount at the onset of softness, the concurrent report of Chief Business Officer Jeremi Gorman departing for Netflix raises more questions about Snap’s ad recovery and positioning vs. other social platforms," Patterson wrote.

Ratings And Price Targets:

  • Bank of America has a Buy rating and $22 target.
  • Benchmark has a Buy rating and $12 target.
  • Rosenblatt Securities has a Neutral rating and $10 target.
  • JMP has a Market Outperform rating and $24 target.
  • KeyBanc has a Sector Weight rating.

Photo: Courtesy of AdamPrzezdziek on flickr

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Posted In: Analyst ColorNewsPrice TargetAnalyst RatingsAndrew BooneBank of AmericaBarton CrockettBenchmarkJMPJustin PattersonJustin PostKeyBancMark ZgutowiczRosenblatt Securities
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