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Strategies & Market Trends : The New Economy and its Winners

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From: Bill Harmond

3/2/2017 2:30:24 PM

of 57684

13:43

SNAP Snap initiated with a Hold at Aegis Capital; tgt $22 (25.80 +8.80)

Aegis Capital initiates SNAP with a Hold and price target of $22. Firm's concerns about Snap's business and stock are eight-fold: 1) slow user growth and no growth in some regions -- same issue with Sell-rated Twitter; 2) the ease by which Buy-rated Facebook has been replicating parts of Snapchat's product across its ecosystem -- perhaps our most focused concern; 3) Snap's lack of an ecosystem; 4) the ad mix is heavily weighted towards brand versus direct response; 5) ad targeting capabilities are inferior to Facebook's and Google's, and marketers cite analytics as a weakness relative to Facebook; 6) a large percentage of advertisers view Snap as experimental spend -- similar to Twitter at the time of its IPO; 7) lack of a clearly defined path towards profitability, and 8) corporate governance -- investors have zero control. That said, firm conducted extensive checks within the ad industry and find that marketers are enthusiastic about the prospects of creating ads to get in front of Snap's coveted demographic. As such, they see Snap as a sustained ad share gainer over the next two years. However, at ~32x 2017 sales, they see the positive ad share gains relatively balanced against the risks.

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