On Wednesday, BofA Securities updated its outlook on Snap Inc (NYSE: NYSE:SNAP), increasing the price target to $14.50, up from the previous $14.00, while keeping a Neutral stance on the stock. The adjustment follows Snap's recent financial disclosures, which indicated a positive trend in revenue generation from Direct Response (DR) advertising and the Snapchat+ subscription service. According to InvestingPro analysis, Snap appears slightly undervalued at its current price of $11.60.
The BofA Securities analyst, Justin Post, acknowledged the company's promising quarterly results, highlighting that the first quarter's forecast suggests there might be a chance for Snap to introduce new revenue streams without significant deceleration. This aligns with the company's solid revenue growth of 13.66% and healthy gross profit margin of 53.09% over the last twelve months. Despite these encouraging signs, Post pointed out that user growth in the lucrative U.S. and European markets remains stagnant. Additionally, the ongoing rollout of updates to the Snapchat application has yielded mixed outcomes.
Another concern raised by the analyst was the potential limitation on EBITDA growth due to increasing expenses. In particular, the cost associated with Share-Based Compensation (SBC) is expected to surpass the company's Free Cash Flow (FCF) estimates through 2027. This expense factor contributes to a cautious view of the company's financial trajectory. InvestingPro subscribers can access detailed financial health scores and comprehensive analysis of Snap's profitability metrics through the exclusive Pro Research Report, available for over 1,400 US stocks.
In terms of valuation, using the after-hours price of approximately $12.22, Snap's stock is trading at 21 times BofA Securities' revised EBITDA estimate for 2026. This valuation is higher than that of Snap's industry peers. The new price objective of $14.50 is based on a slight increase in the projected 2026 revenues to $7.0 billion and an unchanged revenue multiple of 3.8 times. The price target implies a valuation of 25 times the firm's estimated EBITDA for 2026.
In conclusion, while the analyst sees potential in Snap's current revenue growth areas, the challenges in user expansion and the financial impact of SBC expenses are factors warranting the continuation of a Neutral rating on the stock.
In other recent news, Snap Inc. has been a focal point for analysts and investors alike. Goldman Sachs reaffirmed its Neutral rating on Snap, maintaining a $13.50 target price, while highlighting the company's strong revenue performance and promising Q1 outlook. The firm also noted Snap's balance between long-term growth investments and fiscal discipline.
In a parallel development, JMP Securities analyst Andrew Boone maintained a Market Outperform rating for Snap with a $16.00 price target. The endorsement was based on the company's success in increasing app installs, a key metric for the platform's advertising effectiveness.
Recent developments also reveal Snap's strategic move to attract advertisers by offering a 20% return in free ad expenditure to those who spend over $100,000 on their platform. This initiative follows the U.S. Supreme Court ruling that requires TikTok, a major competitor in the social media space, to be sold by its Chinese parent company, ByteDance, or face a U.S. ban.
Furthermore, amid uncertainties surrounding the future of TikTok, shares of Snap and Meta Platforms Inc (NASDAQ:META). declined following news that President-elect Donald Trump may issue an executive order to temporarily halt the enforcement of the TikTok sale-or-ban law. This development has led to investor concerns, contributing to the decline in Snap's shares.
These recent developments underline the evolving dynamics within the social media industry, with Snap's strategic decisions and the fate of TikTok in the U.S. being closely monitored by stakeholders.
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