On Wednesday, BMO (TSX:BMO) Capital maintained its Outperform rating and $18.00 stock price target for Snap Inc (NYSE: NYSE:SNAP), highlighting positive trends and strategic initiatives that may drive future revenue acceleration. The firm pointed out that time spent on the platform by U.S. users has started to increase again after the second quarter of 2024, suggesting a potential uptick in user engagement going into the second half of 2024 and into 2025.
Snap's recent overhaul of its app is expected to further boost user interaction, according to BMO Capital. The company's introduction of new lower-funnel advertising objectives and third-party attribution partnerships has also been noted to increase click-through rates for small and medium-sized businesses.
In terms of cost management, Snap has seen a moderation in infrastructure expenses, partly due to its partnership with Google (NASDAQ:GOOGL) Cloud. This is anticipated to contribute to continued financial leverage in 2025 and beyond. BMO Capital believes that these factors, combined with Snap's strategic moves, position the company well for a potential increase in revenue and a significant improvement in EBITDA in the coming years.
However, the firm recognizes that successful execution remains a risk factor for Snap. Despite this, BMO Capital reaffirms its Outperform rating and a price target of $18, signaling confidence in Snap's trajectory and underlying business strategies.
In other recent news, Snap Inc. reported a 16% year-over-year increase in total revenue, reaching $1.24 billion in Q2 2024, with advertising revenue accounting for $1.13 billion. In a significant collaboration with Google Cloud, Snap has enhanced its artificial intelligence features, leading to a 2.5 times increase in user engagement in the U.S. On the merger front, Sahara AI, a partner of Snap, secured $43 million in funding led by Pantera Capital, which is expected to boost the company's team, platform performance, and developer ecosystem.
Analysts have provided varied perspectives on Snap's performance. BofA Securities maintained a Neutral stance on Snap, following modest growth in the company's third-quarter user reach metrics. However, B.Riley initiated coverage with a Neutral rating due to full valuation, while Loop Capital maintained its Buy rating, despite acknowledging an uneven recovery in advertising revenue.
Roth Capital Partners noted that Snap's Cost Per Mille (CPM) trends for the third quarter showed significant strength, suggesting increased revenue potential from advertising. These are recent developments in the company's journey, indicating a steady, albeit slow, expansion of Snap's user base and potential revenue from advertising.
InvestingPro Insights
Recent InvestingPro data and tips offer additional context to BMO Capital's optimistic outlook on Snap Inc. Despite the challenges highlighted in the article, Snap's financial metrics show some positive signs. The company's revenue for the last twelve months as of Q2 2023 stood at $4.98 billion, with a notable revenue growth of 15.84% in Q2 2023. This aligns with BMO Capital's expectation of potential revenue acceleration.
InvestingPro Tips reveal that Snap operates with a moderate level of debt and its liquid assets exceed short-term obligations, which could provide financial flexibility as the company implements its strategic initiatives. Additionally, analysts predict that Snap will be profitable this year, supporting BMO Capital's view on improved EBITDA performance.
However, it is worth noting that Snap's stock price has fallen significantly over the last three months, with a -36.3% total return. This decline might present an opportunity for investors who share BMO Capital's optimistic outlook.
For a more comprehensive analysis, InvestingPro offers additional tips and insights on Snap's financial health and market position. Currently, there are 5 more InvestingPro Tips available for Snap, providing a deeper understanding of the company's prospects.
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