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Snap’s (NYSE:SNAP) reported strong third-quarter results but caution over spending curbed by conflict in the Middle East gave pause to analysts and sent the stock fluctuating between positive and negative territory after the close Tuesday.
Shares were up 1.9% on Wednesday morning as investors continued to digest the print.
The social media company reported earnings of 2 cents per share for the third quarter versus the average analyst estimate of a loss of 5 cents per share. Revenue of $1.19B topped the expectation of $1.11B. For the fourth-quarter, the company expects revenue of $1.32B to $1.38B, compared to the estimate of $1.33B.
Morgan Stanley, which maintained an Underweight with a $7 price target, noted that the results were “good first steps.”
“While the company is making progress, in our view, there are uncertainties and hurdles to cover in order to make us more positive,” Morgan Stanley said.
The additional hurdles include:
- More progress is needed with SNAP's largest advertisers in the U.S.
- Proof of an ability to scale ad buys across a broader array of advertisers
- Continued successful ad product pipeline to drive faster growth
- Less reliance on China-based advertisers like Temu
- Evidence of durable year-over-year growth in engagement and time spent.
UBS said that beyond the fourth-quarter, Snap (SNAP) has limited visibility and it's hard to gain confidence in how much revenue growth ad system improvements can drive. UBS has a Neutral rating on the stock and an $11 price target.
JP Morgan is similarly cautious about the future, noting the limited visibility is related to the war in the Middle East.
“In early 4Q, Snap is seeing some marketers pause spending due to the recent war outbreak, though we expect [management] also likely embedded some conservatism,” JP Morgan said.
“Overall, we look for greater sustainability of improving trends to get comfortable with the story, noting that the US market remains a laggard & Snap’s exec suite continues to shift w/COO Jerry Hunter retiring.”
That said, the results are a positive read-through for Meta (META) and Pinterest (PINS). JP Morgan is Underweight on Snap (SNAP), with a $9 price target.
Citi is Neutral on the stock with an $11 price target. It raised estimates on revenue and EBITDA for the fourth quarter and for 2024.
The bank sees Snap’s (SNAP) growth continuing to trail peers for the fourth quarter, and said margins will be pressured by new generative AI investments.
“Decelerating user growth and increasing competition from Instagram, Shorts and TikTok” may also hurt the stock.”
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