Snap Inc (SNAP) beats earnings expectations, shares up 34%

Snap Inc (SNAP)’s co-founders got richer by billions of dollars in just a few hours, after the company reported better-than-expected results as the coronavirus pandemic boosted usage of its app.

Shares of the company soared as much as 25% to $35.57 in late New York trading Tuesday after the owner of the popular Snapchat mobile app said sales jumped 52% to $678.7 million in the third quarter, with 249 million daily active users. The gains lifted the fortunes of Snap’s co-founders, Evan Spiegel and Bobby Murphy, by $1.3 billion and $1.4 billion, respectively, taking them to $6.9 billion and $7.2 billion, according to the Bloomberg Billionaires Index.

Spiegel has pocketed over $200 million from Snap stock sales during 2020, benefiting from the record prices. The sales were made between January and September as part of a trading plan adopted by Spiegel, according to SEC filings. Snap shares have climbed 74% this year.

Wealth accumulation in the tech world has been eye-popping during the pandemic as the shift of everything from work, shopping, schooling and entertainment online has boosted demand for digital services. Zoom Video Communication (ZM)’s Eric Yuan added $6.6 billion to his net worth in just one day last month, and Amazon (AMZN)’s Jeff Bezos, the world’s richest person, saw his fortune swell by $75 billion in 2020 to $190 billion.

Snap, whose Snapchat is used to send photos and videos that disappear within seconds, said its net loss narrowed to $200 million, or 14 cents a share. The company posted profit of 1 cent a share excluding some costs, beating the 5 cent loss that analysts predicted. If the positive advertising trends continue, fourth-quarter revenue may jump 47% to 50% from the same period last year, Snap added.

Snap said it capitalized on Facebook (FB)’s July advertiser ban, which saw major brands temporarily abandon the platform over hate speech issues, as well as on uncertainty created by TikTok’s potential ban by the Trump administration.

The Evan Spiegel-led company predicted that its strong growth will continue through the fall, forecasting 257 million DAUs next quarter, exceeding the Street’s 249.8 million estimate.

Spiegel noted during the call that Snap’s popular face filters and lenses have helped it grow its user base outside the US and Europe because they can be adjusted to be locally relevant.

Average revenue per user was $2.73, up 28 percent from the year-go quarter.

Snap said current-quarter revenue could grow between 47 percent to 50 percent over the year-ago period, but cautioned that it was unclear how the pandemic would affect year-end holiday advertising.

Snap Inc (SNAP)’s expected price targets from Wall Street

Goldman Sachs (GS) expects $45 price target

“While there remains considerable uncertainty around advertiser demand and the sustainability of user engagement post-crisis, we believe the acceleration in revenue growth and engagement both pre-crisis and currently is representative of the underlying potential at Snap as the company continues to lean into product development, advertising technologies, and sales expansion. As companies in the Internet sector distinguish themselves in this downturn through their financial performance, we believe the risk/reward in owning SNAP remains favorable,”

Goldman Sachs

RBC expects $45 price target

“We believe Snap just proved that the 58% Y/Y Revenue growth they saw in Jan/Feb was no fluke. We think the significant investments in its core infrastructure have enabled Snap to accelerate its pace of innovation on the user side and advertiser side and are encouraged by management commentary on Android and iOS infrastructure investment. And we increasingly view Snap as a solid play off of Social Commerce and a strong alternative to Linear TV for Brand advertisers given their robust suite of premium video ad products,”

RBC

JP Morgan (JPM) expects $42 price target

“Overall, we believe SNAP’s outsized 3Q results were a function of ad recovery, strong execution, & engagement growth. Importantly, SNAP’s brand-safe platform increasingly resonates w/marketers during a noisy time for social media overall,”

JP Morgan

Stifel (SF) expects $40 price target

“Our long-term thesis remains intact; we think Snap shares remain attractive due to the company’s: 1) unique audience scale / demographics in developed ad markets, bolstered by sustained momentum in DAU growth; 2) track record of consistent product innovation, particularly in secular growth areas like digital communications, augmented reality, and AI, demonstrated by recent product releases including Minis, Maps, and Games; 3) outlook for many years of above-industry ad revenue growth, driven by a long runway for ARPU vs. peers and Snap’s sophisticated portfolio of tools for brand / direct response advertisers; 4) cloud-based infrastructure model, which is flexible, reliable, and cost-efficient; 5) strong balance sheet and capital position; 6) clear path to material profitability, supported by demonstrated operating leverage in recent quarters,”

Stifel

Deutsche Bank (DB) expects $40 price target

“Advertisers we speak to point to acceleration in brand spend into 4Q. In performance advertising, we see Snap’s international rollout of DPAs and generally improving ad tech product, particularly around eCommerce, likely to drive share gains amidst a strong overall market with retail activity shifting online in the pandemic. We also think continued product innovation and an improving international product can drive upside to DAU growth,”

Deutsche Bank

Credit Suisse (CS) expects $39 price target

“We believe Snap has leveled up to enter a period of more durable revenue growth. We also note that with ROW users set to double over two years between 2019 and 2021, incremental optionality has opened up for Snap to add to the long-term growth potential. Our top and bottom line estimates rise for 4Q20 and beyond, and we maintain our Outperform rating,”

Credit Suisse

Should you invest in Snap Inc (SNAP)?

Shares of Snap Inc. (SNAP) appear to be a very good investment option, the Money Midnight Indicator is expecting its price to increase considerably in the next of years. The majority of the metrics point to this investment being highly attractive.

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Jay Lorrence
Investor of 12 years and Managing Editor of Money Midnight, a news outlet focused on highly profitable investment ideas and bold underground research.
Articles: 232

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