Proactive Investors - Snap Inc (NYSE:SNAP) continues to face numerous hurdles, including engagement headwinds, a challenging competitive landscape, advertiser de-prioritization, and a lack of profitability, analysts have highlighted following the company’s better-than-expected third quarter results.
Advertiser de-prioritization is expected to continue into 4Q, most recently evidenced in brand advertisers pausing their campaigns amid the Israel-Hamas war, analysts at Oppenheimer pointed out.
However, they expect some recovery in 4Q with Snap’s guidance implying continued improvement, they wrote in a note to clients.
“Optimizing cost structure to deliver positive earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow at current growth rates,” they wrote.
Bank of America (NYSE:BAC) analysts, who have a ‘Neutral’ rating and price objective of US$11 on Snap, wrote that there is potential for the company’s growth to accelerate in the first half of 2024, but it faces competitive challenges and a lack of profitability.
They also cited margin pressure with Snap’s new generative artificial intelligence investments and decelerating user growth and increasing competition from Instagram, Shorts and TikTok as factors behind their ‘Neutral’ rating.
“Snap's 3Q results will likely fuel some optimism that the company's direct response (DR) solutions are gaining momentum and ad growth could further accelerate in the first half of 2024,” they wrote.
“However, Snap's growth will continue to trail peers in 4Q, and high stock based compensation (SBC) expense makes GAAP profitability unlikely before 2027.”
Analysts at UBS see a balanced risk/reward profile for the stock.
“The company called out solid progress on improving ad system performance for clients, which bodes well for future budget growth,” they wrote.
“That said, we continue to see the risk/reward balanced as the DR revenue 10% acceleration in 3Q appears to be mostly comparison driven and 4Q guidance for less than 1% acceleration on 5% easier comparison speaks to the risks around a back-half weighted brand-exposed platform as macro risks continue to build.”
Snap's shares traded down 5.7% at US$9.15 on Wednesday afternoon.