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Snap rises as Wall Street embraces profitability promise

Published 10/23/2019, 08:51 AM
Updated 10/23/2019, 08:55 AM
Snap rises as Wall Street embraces profitability promise

(Reuters) - Shares of Snap Inc (N:SNAP) reversed initial losses following Tuesday's results, rising 4% in early trade as analysts focused on strong third-quarter numbers rather than a disappointing revenue outlook for the final three months of the year.

At least six brokerages raised price targets on the parent company of photo messaging app Snapchat, with JP Morgan one of two brokerages to boost its recommendation for the shares to "overweight" from "neutral".

After a period when the social media company and its trademark disappearing messages have struggled to compete with Facebook's (O:FB) Instagram, JPM analysts said they expected Snap to capture greater advertising spending.

Many also emphasized Snap's estimate that it would reach profitability in the fourth quarter, as measured by earnings before interest, tax, depreciation and amortization (EBITDA).

Jefferies analyst Brent Thill said that Snap's potentially conservative forecast and accelerated path to profitability also gave him more conviction in Snap's story, although he was disappointed by its fourth-quarter revenue forecast.

"Jefferies is positive fundamentally (on Snap), but would wait for a pullback to get constructive," Thill said.

Snap estimated fourth-quarter revenue at $540 million to $560 million, the midpoint of which was below analysts' estimate of $555.4 million, according to IBES data from Refinitiv.

RBC Capital Markets analyst Mark Mahaney said Snap was still one of the most innovative platforms in the social media space and highlighted that the company was "arguably more investible now than at any point in its public trading history".

"The last couple quarters suggest premium growth resilience and a more credible path to profitability (for Snap)," Mahaney said.

Shares of the company were up nearly 4% at $14.55 in early morning trading on Wednesday, having fallen around 5% following the results on Tuesday.

Up to Tuesday's close, Snap shares are up more than 150% this year.

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