Send me real-time posts from this site at my email
Alex Cho

Snap Inc. Price Target Initiated at $30 at Credit Suisse

Credit Suisse analyst, Stephen Ju initiated coverage on Snap Inc. today, with an Outperform recommendation, and $30 price target. Generally speaking, the analyst confirmed much of the commentary pertaining to user/revenue ramp that’s circulating around Wall Street today.

Stephen Ju mentions that the platform’s appeal to digital advertisers should not be questioned given the demographic it serves, and scarcity of ad-units that targets that specific demo.

Here were the key highlights from the analyst note:

With close to 60% of its U.S. user base under the age of 24 (ages 13-24), we estimate that it currently has close to 70% of the addressable population domestically. While the spending power of this age group may be questioned, we submit instead that the more relevant question should be, "Can brands afford to NOT advertise and raise affinity with this demographic?"

He has a pretty good point, while the millennial demographic doesn’t have significant spending power currently, it’s likely that this demographic will become much bigger consumers down the road. Hence, generating positive ad uplift leads to future sales conversions once this demo matures into a more valuable age demographics.

The analyst goes onto disclose his price target/value model:

Snap is currently monetizing at a rate that is slightly better than where Twitter was when it was at a similar stage but less than that of Facebook in North America. On a go-forward basis, we believe our estimates are appropriately conservative, as we believe that these two platforms represent the upper and lower bounds in terms of execution in serving the needs of its advertisers.

With that said, however, the optionality remains for Snap to monetize along the same trajectory as FB if it is able to make it easy for advertisers to spend money on its platform, and in that scenario, our long-term ARPU and Revenue estimates are most likely too low.

Furthermore, he values Snap Inc. on a DCF basis:

In line with the valuation methodology we have used with the rest of our coverage universe, we have based our target price for SNAP shares on DCF, which suggests $30. We have used a weighted average cost of capital of 11% and a terminal growth rate of 3%.

The analysis seems fairly reasonable, and as a rule of thumb, the comparison to Facebook’s monetization curve suggests further upside to share price. Though making direct comparisons may be premature, hence the consensus is far more conservative in their revenue/earnings/FCF models despite the potential to ramp ARPU/DAUs at a similar trajectory from IPO to Facebook.

I continue to reiterate my hold recommendation on Snap Inc.

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue