Snap Inc (NYSE: SNAP) stock hit new all-time lows after a disastrous first-quarter earnings report last month, but the stock has rallied 23 percent in the past two weeks on renewed optimism about the second quarter. According to the latest data from Deutsche Bank, investors have reason for hope.
Deutsche Bank analyst Lloyd Walmsley says second-quarter social media data suggests “robust” user growth from Snap in the month of May. Snap daily active users declined by 2.8 million in the first quarter after the company’s controversial Snapchat app redesign received mixed reviews from users.
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However, Walmsley says Snap’s redesign of the redesign seems to be getting a warmer reception.
“We feel better about Snap DAU growth — and the shares — looking at the latest trends in the Snapchat self-serve ad platform data,” Walmsley says.
Walmsley says daily active users are up at least 3 percent since the second redesign in April, and Deutsche Bank has raised its second-quarter DAU estimate from 189 million to 192 million based on the latest data. Snap reported 191 million daily active users in the first quarter. Deutsche Bank has also raised its second-quarter revenue estimate from $244 million to $249 million.
“We find the recent uptrend highly encouraging vis-à-vis user trends and platform relevance, seemingly removing one tail risk, at least near term,” Walmsley says.
Despite the encouraging trends and the market optimism, Walmsley is still cautious on SNAP stock. Deutsche Bank’s updated second-quarter revenue estimate is still well short of consensus estimates of $255 million. Walmsley says one positive data point is not enough to imply a longer-term trend, and the social media market remains fiercely competitive. He says SNAP stock is also expensive, trading at roughly 10.4 times 2019 sales estimates.
GBH insights head of technology research Daniel Ives says Snap has a lot to prove, and the stock will likely remain in the penalty box until it can win back Wall Street’s trust.
“It all comes down to monetization in our opinion, and SNAP’s 1Q speaks to the Everest-like uphill climb the company has ahead of itself to turn this platform and growth trajectory around,” Ives says.
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Ives says the app redesign will ultimately prove to be the right decision in the long-term.
Deutsche Bank has a “hold” rating and $12 price target for Snap. GBH Insights has a “highly attractive” rating and $14 target for SNAP stock.
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Snap Inc Users Are Coming Back originally appeared on usnews.com
