Snap stock soars 35%, despite doubts over whether momentum can be sustained
marketwatch.com
Snap Inc. finally reported a better-than-expected quarter, and that has investors debating whether the company’s new momentum is here to stay or poised to disappear after 10 seconds. The ephemeral-messaging company doubled year-over-year revenue, ahead of Wall Street’s projections, as it began to gain traction for its newly introduced self-service ad platform. More local businesses are advertising on Snapchat, but the company also cautioned that the fourth quarter tends to be the busiest one for brand advertisers, which could lead to a moderation in growth for the current period.
Snap shares SNAP, +40.26% are up 35% in Wednesday morning trading. The stock is now trading above its $17 IPO price for the first time since July.
Not all are convinced that the company has turned things around for the long term. “While this clearly marks a change in trend,” MoffettNathanson analyst Michael Nathanson wrote of Snap’s latest results, “we wonder how much of these gains are sustainable and Snap-specific, versus merely a rising tide lifting all boats (given [an] acceleration in ad revenues at [Alphabet Inc.’s GOOGL, -1.05% ] Google and Facebook Inc. FB, -0.59% too), a theory enforced by Snap’s own guidance.”
Nathanson has a sell rating on shares and a $10 price target. He questions whether the strong growth from small and midsize businesses that Snap cited in its earnings call masks weakness with larger brands. “We give Snap full credit for the work it’s done to make the app more accessible, as well as making the platform more performance marketer friendly,” he wrote, but its valuation at 18 times 2018 revenue estimates doesn’t warrant more than a sell rating, in his view.
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