Analyst Brent Thrill says Snap stock is fully valued at the moment, and the company has a lot to prove to investors if it wants to gain long-term bullish momentum.
On Monday, Jefferies downgraded Snap from “buy” to “hold,” and Thrill says $15 is likely the upper end of Snap’s trading range for now.
“We continue to have optimism around Snap’s platform, but fundamental execution needs to be shown before we can be more positive on the name,” Thrill says.
Snap stock is now trading at around 11 times Jefferies 2018 revenue estimates, a price that Thrill says is appropriate given the company’s near-term risks as it rolls out a newly designed app.
“We’ve also spent some time with the updated Snapchat app and see the positives, but also some negatives behind the redesign which could lead to some turbulence in usage and adoption when rolled out,” he says.
Despite the uncertainty surrounding the app redesign, Jefferies estimates Snap will grow its user base by 15 percent this year and increase its average revenue per user by 44 percent.
Jefferies has gotten moderately positive feedback from advertisers about the new app, particularly when it comes to the “social” tab. In the long-term, Thrill says the redesign could help Snap expand its market share outside of the 13-to-34 age range.
In December, RBC Capital published its latest social media survey results, which painted a clear picture of Snapchat’s strengths and weaknesses. The platform was the most preferred social media network among teens aged 13 to 18. RBC found that 79 percent of teens currently have a Snapchat account compared to 73 percent who have an Instagram account and 57 percent who have a Facebook (FB) account.
However, among social media users of all ages, 91 percent have a Facebook account compared to only 31 percent who have a Snapchat account. RBC analyst Mark Mahaney says Facebook and its Instagram platform are still the gold standard of social media.
“In terms of trends, Snapchat is clearly rising among the 13 to 18 cohort, but Instagram has had positive trends across every age cohort over the past three iterations,” Mahaney says.
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